The bond fears certainly look acute. According to a JPMorgan Chase & Co. model, the S&P 500 is assigning zero odds to the chance of a recession within one year, and U.S. junk bond spreads indicate just an 8% likelihood. The Treasury market puts the probability at 62%.

Meanwhile, the world’s pool of negative-yielding debt remains near a record thanks to insatiable investor demand for safe assets. Those yields are fair value if you assume a new round of monetary stimulus is coming and recession risks are rising. If the Federal Reserve and European Central Bank disappoint ultra-dovish expectations, however, bulls could be braced for losses.

Stocks’ Take

Equities made a comeback in June, buoyed by softer monetary rhetoric and trade optimism. In a sign of growing investor confidence, U.S. small-caps outperformed large-caps and weaker balance sheet stocks beat firms with stronger financial positions.

“The markets want to have their cake and eat it,” said Jon Cunliffe, chief investment officer at Charles Stanley in London, which oversees about 24 billion pounds ($30 billion) in assets. “They want to see some sort of resolution to the trade war and a significant amount of Fed cuts.”

The trouble is, genuine progress on trade would reduce the need for monetary easing. “As a consequence, there’s less upside in risk assets over the balance of the year,” he said.

In credit, investors can collect 367 basis points more than Treasuries to buy U.S speculative-grade rated bonds, according to Bloomberg Barclays index data. That’s 74 basis points below the five-year average.

In fact, the gap between high-yield spreads and the one-year U.S. recession probability forecast is near the widest since the financial crisis, according to a Bloomberg model.

All eyes are now on economic data as traders search for clues on what’s next. Global manufacturing took a hit at the end of the second quarter, signaling a worsening economic growth outlook. In the U.S., IHS Markit’s PMI was better than a preliminary reading, but still near a decade low.

“From here, it’s all about growth,” said Mike Bell, a global market strategist at JPMorgan Asset Management. “We’re talking to clients at the moment about being neutral risk. Given that it’s possible that you get this reacceleration in growth, it doesn’t make sense to have big underweight positions. On the other hand, if data continue to deteriorate, being overweight risk assets like equities and credit could be a risk.”