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If an investor had fallen into a deep sleep for the last month, woken up this week, and checked her portfolio, she might think many of the market’s primary risks had evaporated.

The S&P 500 is trading near its recent record high. That index, along with the Dow Jones Industrial Average, are tracking for their best month since January. Investors just plowed the most capital into US equities in more than a year, flows data shows. The market’s “fear gauge” is muted.

All the while, equity strategists are sceptical Washington and Beijing can reach a meaningful resolution in their trade war as President Donald Trump and the Chinese President Xi Jinping convene in Japan this week. The global economy is slowing. Data suggests analysts’ expectations for companies’ future earnings growth is faltering.

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While some of the market’s internal behaviour shows signs investors are sceptical the stock market’s rally can continue for now without a hitch, experts say investors appear to be ignoring threats looming over the rally.

“Can equity inflows continue in the face of falling bond yields and weak data?” Deutsche Bank strategists wondered in their weekly North American fund flows report.

Investors poured $US14 billion into US equities last week, the most since March of last year, the firm said. Those flows came as central banks, including the Federal Reserve, turned increasingly dovish and investors became incrementally more optimistic about the prospect of a US-China trade deal.

Still, investors essentially shrugged off meaningfully weak economic data that’s been plaguing key US regions, like the Empire State Manufacturing Index posting its largest decline in nearly two decades and the Philadelphia Fed’s manufacturing metric falling to its lowest level in months.

Amid US stocks’ rally, some classically defensive sectors are showing signs investors are dubious about the market’s direction. Energy, financials, and industrials have all rallied strongly this month, Mike Wilson, the chief investment officer and chief US equity strategist at Morgan Stanley said on Monday.

“That’s typically not a great sign, as it means the market is sceptical about something,” Wilson said on an episode of the firm’s podcast. “We think its scepticism is about growth – and it’s warranted.”

He added: “We are also sceptical about any trade deal between the US and China. While it does appear the two sides have become more open to further discussion, it’s not clear that an agreement can be made that will change the trajectory of growth.”

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Others hold a bullish view on equities this year even as the data is proving soft and analysts’ earnings expectations for companies around the world are falling.

“There is a view out there that equities are way too complacent regarding the growth outlook in 2H, and that the recent rally is already pricing in a strong bounce in PMIs,” Mislav Matejka, a strategist at JPMorgan, said in a report earlier this week.

Matejka said investors could interpret a chart of the MSCI World Index against global manufacturing data – which shows the former has soared while the latter has sunk – as evidence that “equities are getting ahead of themselves.”

That’s not JPMorgan’s view, as the firm points out market leadership has been defensive. Still, they don’t discount the weak data that’s been pouring in.

At the moment, stock investors are simply not pricing in the prospect of a trade war escalation, UBS strategists and economists told investors in a report earlier this week.

Equities in the US initially reacted favourably to a Thursday report from the South China Morning Post that the US and China had reached a tentative “truce” in the trade war ahead of Trump and Xi’s G20 summit – but the market gave up those early gains.

“The UBS Synthetic Trade War Monitor introduced in our last Q-Series report shows that the ‘market’ is less than halfway between complacency and last year’s peak fear levels,” UBS said.

“There are big differences across assets, though,” the firm said. “Rates … and industrial metals … are pricing high risks, while credit, currencies and equities are closer to complacency.”

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