Fast-money quants known as commodity trading advisers have been amassing a big short bet since May. JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou estimates that they are sitting on a $150 billion short bond position that they may unwind in a rally.

The flip side of the extreme shift is that negative surprises can have an outsize influence. In March, banking turmoil caused equities to sink and Treasuries to rally, forcing commodity trading advisers to unwind $200 billion of bonds in the span of a few days, according to JPMorgan Chase & Co. A growth scare could reprise this episode.

Nevertheless, it will be hard to stop the market momentum. Strategists have revised upwards their S&P 500 targets and economists have softened their dire predictions. Some of the biggest downside risks threatening the economy — inflation rising to a four-decade high, a looming recession — have since faded.

“It would require a massive rally in bonds that would probably only occur with some sort of growth scare from a data shock,” said Charlie McElligott, cross-asset strategist at Nomura Securities International. “We have seen economic growth data hold, labor staying firm, and even US housing recovering.” 

Eoin Treacy's view

The first half of the year delivered a storming rally on Wall Street, from deep oversold conditions. Despite interest rates ramping higher, long-dated bond yields have been static with the 4% level continuing to hold. Stocks are rallying in anticipation of rates peaking and bond yields are static as inflationary pressures subside. It seems to me that overweighting when trends are already overextended is risky.