That’s for good reason. Though there’s still a few days to go, the S&P 500 could notch its best quarterly return in 50 years, Bank of America observed in a note to clients.

But there are signs Wall Street is hedging its bets heading into the third quarter, looking more closely for opportunities without assuming everything will keep going up.

See here: Nearly two in three asset managers think the long-term impacts of Covid-19 have not been sufficiently factored into stock markets, according to a recent survey conducted by Institutional Investor.

Defensive positioning is on the rise. For the week ending Wednesday, investors — who are still sitting on a huge pile of cash — pumped $2.9 billion into gold and took $7.2 billion out of stocks, according to Bank of America. The flow of money into riskier bond funds stabilized.

Plus, the Cboe Skew Index — which tracks demand for options that would pay out if the S&P 500 were to see a sharp, unexpected drop — has started climbing higher.

“We don’t see any signs of complacency in the derivatives market,” Kevin Russell, the chief investment officer of UBS’ hedge fund, told reporters on Friday.

Taken together, Wall Street appears to be adopting a more cautious stance, driven more by a desire to look for deals than by the frenetic “everything wins” strategy that defined the spring.

The CNN Fear & Greed Index, which follows the market mood, remains in “neutral” territory.

Russell said he gets the sense the market is “conservative” and “anxious about the outlook.” But that doesn’t mean all risks are fully priced in.

That’s especially true when it comes to surging coronavirus infections that could spark a fresh round of shutdowns. The S&P 500 fell 2.4% on Friday after Texas set new restrictions on bars and restaurants amid a spike in cases.

Remember: JPMorgan acknowledged in a note to clients dated June 19 that it is not “properly hedged” against a second wave of infections that triggers lockdowns.

“We think there is sufficient hospital capacity to accommodate the inevitable rise in infections as mobility increases,” the bank said.

The jobs picture is improving, but still murky

The main event ahead of the July 4 holiday is the US employment report for June. Wall Street expects another solid showing — but after the May data shocked forecasters, faith in analyst estimates is running low.

Economists surveyed by Refinitiv expect to learn that the US economy added 3 million jobs in June, pushing the unemployment rate down to 12.3%. That would be a positive sign that the United States economy continues to recover as furloughed employees return to work.

There’s a few caveats, however. Investors don’t really know what to expect after the US government said jobs increased by 2.5 million in May, when the expectation had been for a 7.5 million decline.

Economists have started to rely more heavily on non-traditional data, such as restaurant reservations logged through OpenTable, but extrapolating too much from that information is difficult.

And even if the US economy added 5 million jobs in June, as Capital Economics expects, it would be far too soon to celebrate. Employment would still be below 10% below February levels, economist Micheal Pearce said in a recent note to clients.

Investors are desperate for some good economic data as infections climb in many parts of the country, though the June report won’t reveal much about how the labor market might be affected by the current surge in cases.

On Friday, the Bureau of Economic Analysis reported that consumer spending rebounded in May, but Americans’ income dropped sharply as government payouts declined. That’s bad for the consumer-driven US economy over the long run.

Plus, the University of Michigan reported that consumer sentiment slipped in the second half of June, in sync with a resurgence in Covid-19 cases in parts of the country.

Up next

Monday: US pending home sales; Europe business confidence

Tuesday: US consumer confidence; China manufacturing data; Japan unemployment; FedEx (FDX) earnings
Wednesday: ADP private employment report; Germany unemployment; ISM Manufacturing Index; General Mills (GIS) earnings

Thursday: US jobs report; Spain and Italy unemployment; Weekly US unemployment claims

Friday: US markets closed

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