In a nutshell, they did pretty badly.

Most important questions follow: what has been priced in, and what is the expectation from here? Bloomberg’s market consensus for the US economy gives an indication of what news are in the price: real growth above 2%, core inflation to slow down, low unemployment, housing demand cools down, S&P earnings per share to grow slightly, interest rates to rise by 2% into 2023, and a 25% chance of recession.

All-in-all, this sounds pretty favourable. This somewhat comes in contrast with the sharp market reaction that we have seen so far this year. What’s happening then? The Fed’s economic stimuli, which had propelled valuations to the stratosphere is being reversed, which inevitably deflates asset prices.

How far down does it have to go to reflect a genuine level of activity? Until now, consumption is being sustained by rising household credit, and a plentiful job market. Zooming out of the US, China is the main slowdown factor, with tepid real estate and plunging manufacturing activity (cf image). Europe has an energy crisis to deal with, which could have devastating consequences for Germany.

What comes next? It is very probable that the US would achieve a soft landing, helped by a strong dollar that makes every import cheaper. China has vowed to prop up its economy, but is falling behind in decisive steps. What happens in Ukraine is a wild card indeed, but the global economic impact of it remains limited if no escalation ensues.

In short, keep calm and carry on. A broad asset diversification will be the best hedge against a particularly wide dispersion of outcomes. We still consider China a high-risk, high-reward strategy. The US valuations start looking attractive from now.