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Investment Outlook

Q4 2023

Is the Soft Landing a Fairy Tale?

From the outset of the Federal Reserve’s (Fed’s) rate-hike regime in March 2022, pundits didn’t like the central bank’s chances of taming inflation without crashing the economy. Skepticism about the potential for a Goldilocks-style soft landing grew as inflation climbed to 40-year highs and proved stickier than many expected. Recession worries reached a fever pitch as 2022 closed with sharp losses for stocks and bonds.

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Key Takeaways

  1. We still think a modest recession is likely.

    In our view, a downturn will result from the inverted yield curve, weakening housing market, declining manufacturing activity and the delayed impact of aggressive interest rate hikes.

  2. Expect rates to remain higher for longer.

    The fastest series of rate hikes in 40 years will likely slow down the economy, but we don’t think policymakers will quickly pivot to easing unless something in the economy breaks.

  3. Emerging markets (EM) inflation has been less sticky than in developed markets.

    EM central banks have room to begin easing monetary policy, potentially propelling EM economic growth into 2024.

  4. Uncertainty keeps the emphasis on bond quality.

    We remain selective and focused on higher-quality securities, and we believe extending duration remains a prudent strategy.

  5. Artificial intelligence is a big thing, but not the only thing.

    Selective opportunities can be found in other corners of the market, including businesses tied to such themes as the strong rebound in travel and mobility and the onshoring and nearshoring trends.

  6. The upward trend in the semiconductor cycle could have staying power.

    Forecasts project annual demand growth for chips and chipmaking equipment in the high single-digit range through 2030, which should bode well for Asian markets.

Q4 2023 Investment Outlook Resources

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 risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

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.