The equity markets of Developed Markets (DM) economies are going through a slow roll in the year so far as recessionary indicators continue to be prevalent while not enough are flashing red to call for a recession in the biggest DM of all: the United States. This colours how the markets can be expected to perform in the next six months.

JPMorgan estimates that while core inflation is likely to cool, the inflation slide is likely to prove incomplete. An actual recession would go a long way in cooling high valuations and increasing affordability. Therefore, in the absence of a recession, the bank forecasts that global core inflation will remain well above 3% through the end of 2024. Of all possible scenarios, the dominant one indicates a 36% probability of a synchronized recession sometime in 2024 due to inflation being persistent and becoming more embedded, thus necessitating policy rates to rise materially further causing sustained tightening. The second largest probability – at 32% – indicates that the US will slip into a “mild” recession by the end of the year, with the rest of the world growing at a sub-par positive pace.

Over in US markets, there has been a flight of capital (of sorts). Bank of America notes that the percentage of S&P 500 constituent stocks outperforming has been drastically falling and is increasingly concentrated to a select few names over the course of the year.