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2024 Investment Outlook

Third Quarter

Diversification Is Crucial Amid Dominant Investment Themes and Election Noise

Many of us entered 2024 expecting inflation to continue its steady descent and the Federal Reserve (Fed) to initiate a rate-cutting regime. We’re now at mid-year, and inflation’s decline has slowed while the Fed remains on hold.

As expected, artificial intelligence (AI) and obesity drugs have stayed in the spotlight as major investment themes, boosting global stock market indexes this year. However, the dominance of these trends may unintentionally increase risks for investors, especially those using passive strategies.

That’s why we advocate taking a well-diversified, active investment approach. This might mean increasing your exposure to areas of the market that have lagged in recent years, like small-caps and emerging markets. In our view, the market has undervalued these asset classes as if the world were experiencing a severe recession.

Thinking Beyond the Big Players in AI and Obesity Drugs

Recent corporate earnings reports confirm that the ramp-up in AI spending is just beginning. We’re seeing the impact on the companies building the AI ecosystem and those using AI to run their businesses more efficiently.

This doesn’t mean we should put all our chips on a handful of the biggest companies. As you’ll read in this issue of Investment Outlook, AI is driving earnings growth for small- and mid-sized companies in developed and emerging markets. Many are businesses that investors using a passive investment approach might miss.

Similarly, we’re uncovering less obvious opportunities related to obesity drugs. While some of our portfolios hold the widely known early movers in this category, our teams have also identified smaller U.S. and non-U.S. biotech companies benefiting from the demand for weight-loss medications.

The market’s focus on obesity drugs has also caused some investors to overlook what we consider high-quality companies in the health care sector. This has created opportunities for our teams to own temporarily forgotten businesses that have continued to generate strong cash flows.

Staying Invested Despite Election Year Worries

Countries accounting for 60% of the global economy are voting in elections that will determine heads of state this year.1 We already have results from India, Mexico and the European Union, and the U.K. has an election set for early July. While the outcomes may have significant implications locally, the campaigning and election results haven’t yet triggered sustained moves in global markets.

Indeed, the outcome of India’s general election surprised many observers. The Indian market’s volatility in the wake of indications that Prime Minister Narendra Modi's party would lose its outright majority reflects investors unwinding bets they made on the anticipated results of the election. While the election outcome’s long-term investment implications are unknown, the volatile aftermath reminds us of the risk of positioning portfolios based on predictions.

In the U.S., political rhetoric will likely intensify before and during the party conventions in July and August. Historical data indicates that market volatility tends to pick up through Election Day but typically decreases afterward.2

The same research also shows that staying invested throughout the election year has delivered better results than attempting to maneuver in and out of the market. So, we wouldn't recommend that investors adjust their portfolios in anticipation of or in response to the turmoil.

Similarly, India’s surprise results remind us that investors shouldn’t bet on election outcomes with their portfolios. A lot could change between now and November; even those who correctly guess the outcome would have difficulty handicapping the policy impacts on individual businesses. In the end, the performance of individual companies drives investment results.

Thank you for entrusting your assets to us.

Victor Zhang
Victor Zhang

Chief Investment Officer

Senior Vice President

¹ Bank of America Securities, “BofA Global Research Calls 2024 the ‘Year of the Landing,’” November 27, 2023.
² Data from 11/6/1931 – 11/3/2021. Source: FactSet, U.S. National Archives, Library of Congress, American Century Investments.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.