The bulls still have a decent case to make. Wage inflation seems well on its way to normalization without any rise in the unemployment rate, which seems to settle one of the key macroeconomic debates of the last 18 months. Even though strains are just starting in the office sector, the residential housing market is showing tentative signs of turning a corner. Housing market sentiment and home sales are tentatively perking up.

Our take is that it still seems like a recession is more likely than not, but a softer landing is possible. We will be closely watching for signs that the credit crunch from March is having a sustained negative impact through the spring.

The global economy: The bears on the global economy seem to be worried about geopolitical risks, energy crises, an unpredictable war and unresolved trade issues between the U.S. and China. It makes sense to keep a keen focus on all of these unresolved issues that threaten economic growth and stability. In fact, our Chairman and CEO Jamie Dimon spent time discussing them in his latest letter to shareholders. The biggest risks facing the global economy outside the U.S. are probably not endemic to the business cycle, but are still very important to monitor.

The bulls seem to have the upper hand here. Global Purchasing Manager Indices, which offer a real time indication of business activity, are at their highest levels since last summer and have had a tremendous bounce since last fall. A weaker dollar helps grease the wheels of global trade, and China’s reopening continues to provide a boost. Louis Vuitton helped drive the French stock market to an all-time high this week after strong sales in China.

Our take is that growth prospects outside the U.S. look better than they do inside the U.S. That means the dollar is likely to continue to weaken, and investors should look to European and Chinese stock markets which could continue to perform well.

The bond market: The bears on bonds have a simple case: The economy is still chugging along and inflation is still at ~5%. It doesn’t make much sense for yields to fall (and bond prices to rise) as long as growth remains resilient and inflation sticky.

The bulls say that markets only have ~80 bps of interest rate cuts priced in over the next twelve months. In the average recession back to the 1950s, the Fed has cut by an average of ~300 bps (excluding Volcker’s 1980 campaign). In a recession, Fed cuts will likely be deep, and price gains in core bonds could be steep.

Our take if our base case on the economy plays out, we could be in for much lower interest rates (and higher bond prices) over the next 12-18 months. However, for the tactical investor, there may be better entry points in the weeks ahead.

The stock market: The bears point to the ominous U.S. economic backdrop to justify their view that stocks should head lower. Valuations also seem to be embedding a high degree of confidence in a relatively benign earnings outcome. The forward P/E multiple of the S&P 500 is above 18x again, and the spread between what you can yield from earnings and what you can get from corporate bonds is the tightest of the last 10 years.

The bulls suggest that the earnings recession that we have been in is set to end after this quarter. After that, consensus expectations call for earnings growth to quickly bounce back to a low teens pace by the end of the year. Beyond the fundamentals, positioning seems short, which could set the market up for a squeeze higher if we have an upside surprise this earnings season.

Our take is that neither are right. Instead, we expect choppy, rangebound trading through the rest of the year. Certain sectors (healthcare, industrials, and reasonably priced tech) and sizes (mid-caps) may outperform, but at an index level, we are pretty close to where we think the market will likely end the year.

TAKEAWAYS: Back to reality

The hardest part of 2022 was that barely any investments worked.

What we have learned so far this year is that 2022’s environment of boiling inflation and aggressive interest rate hikes is in the rearview mirror.

The debate between bulls and bears will continue, but investors should take comfort in the idea that assets are doing what they need them to do to achieve long-term success. Equities drive long-term growth. Bonds provide stability and security. Alternatives allow for the potential to outperform public markets and access unique opportunities.

We can help address the investment challenges ahead while building portfolios that help you reach your financial goals.

DISCLOSURES

All market and economic data as of April 13, 2023 and sourced from Bloomberg and FactSet unless otherwise stated.

Small capitalization companies typically carry more risk than well-established "blue-chip" companies since smaller companies can carry a higher degree of market volatility than most large cap and/or blue-chip companies.

International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be more volatile.

Diversification does not ensure a profit or protect against loss.

The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The MSCI World Index is a broad global developed markets equity benchmark designed to support: Asset allocation: Consistent, broad representation of the performance of developed equity markets worldwide, without home bias.

The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

The NYSE FANG+ Index is an equal-dollar weighted index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix, and Alphabet's Google.

Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk.  Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

RISK CONSIDERATIONS

• Past performance is not indicative of future results. You may not invest directly in an index.
• The prices and rates of return are indicative, as they may vary over time based on market conditions.
• Additional risk considerations exist for all strategies.
• The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
• Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.

IMPORTANT INFORMATION

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​ Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. ​