Markets are “settling back into the soft landing narrative,” JPMorgan analysts led by Marko Kolanovic said Monday.

To the extent that’s indicative of macro-policy complacency on the part of investors, it’s premature and could be misguided, the bank suggested.

Equities are coming off a third straight week of gains (the selloff was canceled when no one RSVP’d), and the US rates complex has calmed down considerably.

Yields are well off the highs and pricing for the Fed trajectory shows ~43bps of cuts for 2024 versus just 29bps prior to the May FOMC meeting. As the figure above suggests, the rebound in rate-cut pricing came just in time to rescue equities from what might’ve otherwise morphed into a more serious pullback.

Kolanovic on Monday cited “softer US jobs data and dovish guidance from the Fed, ECB and BoE,” for the market’s renewed faith in a benign resolution to the most vexing macro-policy conjuncture in a generation.

Jerome Powell effectively ruled out a return to rate hikes during the May press conference, while the ECB’s highly likely to commence cautious cuts as soon as next month. For its part, the BoE left the door wide open to a June cut at last week’s meeting.

But JPMorgan remains cautious. For a whole host of reasons. “Excluding the Magnificent 7, S&P 500 EPS growth [was] -2% YoY, the fifth consecutive quarter of negative growth for the ex Mag-7 group,” the bank noted on Monday, commenting on earnings season in the US.

Kolanovic and co. acknowledged that the share of companies guiding higher rose QoQ, while guide-downs fell “dramatically,” but the bank’s cross-asset team said they take no comfort in that. “The optimism on earnings has gotten ahead of the economic momentum,” the note read.

The bank described an ambiguous macro outlook, a “tricky” seasonal for equities and “a challenging combination” of inflation risks, margin pressure and stretched positioning.

If developed market central banks are right to assume a soft landing, carry trades “such as long spread products and short vol,” would be attractive, the bank went on. In a hard landing, you’d want to be in outright duration longs and bull steepeners. As for “no landing,” it’d be back to short duration and bear flatteners.