J.P. Morgan Asset Management’s «Guide to the Markets» provides client advisors and professional investors with targeted support for making the best investment decisions.

Persistent inflation, persistent volatility

Elevated inflation remains at the center of market volatility, with investors increasingly concerned that central banks will need to slam hard on the monetary brakes.

The combination of higher consumer prices and interest rates will likely cause economic activity to slow during the second half of the year, and our recession monitors should be closely tracked (Guide to the Markets – Europe pages 14 & 25).

Stock markets have already priced in a lot of bad news

Slowing demand and rising costs will pressure corporate earnings (pages 46 & 50). However, most major markets have experienced double-digit declines, suggesting that a significant deterioration in earnings is already priced in (page 63).

Despite strong outperformance year-to-date, value stocks still have more scope for upside relative to growth stocks in the coming 12 to 18 months (page 51).

Falling inflation would ease the pressure on central banks

So long as inflation moderates alongside slowing activity, central banks should be able to ease back from their extreme hawkish rhetoric in the first half of 2022 (pages 7 & 10).

Bond yields could still rise further but risks are now more balanced and, after such a significant reset, bonds are more attractive than they were at the start of the year (pages 65 & 71).

Humility in forecasting, balance in portfolios

Significant uncertainties remain not least the timing of the inflation peak and the central banks’ patience in allowing inflation to persist above target (page 8). Europe would also face a very challenging winter if its gas supply from Russia is disrupted (page 33).

Portfolios can benefit from balance, as well as allocations to macro funds (page 75), core real estate and infrastructure (page 76) to bolster against recession and inflation risks.