With indications the era of accommodative interest rates is over, solid company fundamentals will again be important for equities and bonds. Discover more in the latest «Guide to the Markets» of J.P. Morgan Asset Management.

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.

Recent Banking Turmoil to Tighten Credit Conditions but This is not 2008

It seems likely that recent events in the banking sector will have some impact on bank lending standards, which will slow growth (Guide to the Markets – Europe page 23, page 26). We already anticipated a downturn in the US to squeeze out inflation (page 14), so our base case for a moderate recession remains the same.

Though the risk of a somewhat deeper recession has increased, we still think a 2008 style financial crisis is unlikely (page 10, page 11).

More Confident we’re Near Peak Rates

If the commercial banks tighten lending standards, the Federal Reserve and other central banks will need to do less to bring about the desired slowdown in activity and reduction in inflation (page 8). Peak rates are now expected to be lower (page 20, page 31) and investors should feel more confident that high quality bonds can offer income and diversification (page 72).

Short-term Uncertainties Point to Balance in Portfolios

At this stage there are considerable uncertainties over the extent to which recent turmoil will affect sentiment and activity (page 15, page 26). It is also unclear how fast inflation rates will fall (page 7) and how fast central banks are able to re-focus policy to be more growth supportive.

The uncertain economic backdrop argues against extreme positioning between or within asset classes.

Focus on Quality

For now, investors should focus on quality across all asset classes (page 51, page 71). We remain confident that the era of zero and negative interest rates is behind us (page 66), and that sound corporate fundamentals will be important in both equity and fixed income (page 46, page 69).