In a recent note, analysts at JPMorgan (NYSE:JPM) expressed concern that inflation will stay too high if there is no slack created in the economy.
The investment bank notes that we are entering a seasonally tricky time of the year "on top of a challenging combination of inflation at risk of staying too high and profit margin pressures."
"We are concerned about inflation staying too high if there is no slack created in the economy, adverse bonds demand-supply with negative term premia, consensus expectation of profit acceleration of almost 20%
between Q1 and Q4 of this year, which doesn't typically happen, especially if the economy softens in 2H, consumer tailwinds potentially turning, as well as concentration and leadership reversal hurting the market," wrote the bank.
Furthermore, JPMorgan believes the "Goldilocks view" of the market embracing first-quarter inflation/rates moving lower, earnings acceleration, and the economy having no landing remains inconsistent.
"In fact, the Growth-Inflation tradeoff could end up the opposite, as seen in recent ISM showing a spike in pricing and slowing orders," said the firm.
With the seasonally poor time for markets approaching and still stretched positioning, JPMorgan expects more consolidation in equity markets over the next months.