JPM note that today’s high returns on cash deposits are likely to disappear as we get closer to a recession. JPM’s base case for the global economy is a mild recession, with consumer spending running out of steam, businesses pulling back on investment and weakening labour markets leading to a mild recession that helps to bring inflation back towards target. In such a scenario, cash returns will fall, reflecting the decline in interest rates as central banks adopt less restrictive policies. Whereas it will only be a moderate downside for stocks, it will be positive for bonds (on the back of falling interest rates).

However, the markets are, in JPM’s view, currently pricing in a ‘soft landing’, whereby growth remains close to, or modestly below, trend across developed markets, while inflation falls back towards 2% and interest rates are gradually lowered to a neutral level without substantial cuts. Such an environment would keep to the current trend, with asset prices range bound, but cash materially underperforming. The only scenario in which cash could outperform is in the dreaded event of stagflation, with sticky inflation forcing interest rates to remain high, and the global economy heading into a deeper recession. However, given the views of the markets and JPM, indications are that such a scenario is unlikely, and investors will likely need to look to be more proactive with their savings.