The stars may be aligning for a repeat of last August’s stock selloff, warns JPMorgan

Need to Know starts early and is updated until the opening bell, but?sign up here? to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

It’s been a tough April for stock investors, with a 4.4% drop for the S&P 500, and a fall of 2% this week. The index is also in the grips of the longest slide since January, with a fear gauge on the rise .

Still, earnings season has barely begun and hopes remain that corporates do some heavy lifting here.

Onto our call of the day, which brings a tale of summertime caution from bearish-as-usual JPMorgan strategists, who say the recent march higher in bond yields should not be dismissed so casually.

From as low as 4.1% at the start of the year, the 2-year Treasury yield BX:TMUBMUSD02Y is hovering at 4.9%, and tapped 5% this week after Fed Chair Jerome Powell backed up market views that rate cuts would take longer .

“Most of this increase in the 2-year UST yield between January and the beginning of April was largely ignored by equity and credit investors in a similar fashion to May-July 2023,” write a team of strategists led by Nikolaos Panigirtzoglou in a note to clients published late Wednesday.

“The risk is that the 2yr UST yield consolidates at around 5%, the ‘high for long’ narrative of last August-October, which at the time had triggered fears of eventual hard landing and had hit risk assets, is repeated going forward,” they say.

Panigirtzoglou and his crew recall how the 2-year Treasury yield traded around 3.8% last May, then reached 4.9% by the start of August — all that was largely ignored like the current climb in yields. It was only once the 5% level took hold that a selloff for stocks and credit began.

From August to October 2023, stocks corrected about 10%. The S&P is currently 4.4% off a March 28 record high of 5254.35.

They flag a crucial difference this time though — investors started April with far more elevated exposure to risk assets compared with last August. Here’s their chart showing equity allocation by nonbank investors at the start of April, and now at the highest since 2007:

Here’s another chart showing short interest positions on some of the biggest exchange-traded funds for U.S. stocks — the SPDR S&P 500 ETF SPY and Invesco QQQ Trust Series QQQ , which tracks the Nasdaq-100 NDX . The record low short interest on those ETFs reveals “how little protection there is in U.S. equities and tech stocks in particular,” said the JPMorgan strategists.

Of course, we are talking about the most bearish bank on Wall Street right now, forecasting the S&P 500 to end the year at 4,200, the same as their 2023 call, which obviously was off base. If JPMorgan is right, the index has a 16% correction to go from here.

In a separate note, JPM summed up its current advice to clients, which is a preference for commodities over stocks — but energy over gold due to the latter’s recent run. The bank also has gotten more positive on Europe stocks over the U.S. as they see the latter as expensive.

Random reads

A corpse walks into a bank. Sort of.

Suing for a bigger soda .

Keep reading today's Need to Know.

Check out?On Watch by MarketWatch , a weekly podcast about the financial news we’re all watching — and how that’s affecting the economy and your wallet.