Investment Outlook
Q1 2023
Global Recession Ahead?
Persistent inflation, slowing economic growth, rising geopolitical tension and declining stock markets have rocked investors around the world. After nearly three years of battling the effects of a historic pandemic, consumers, businesses and governments are now adjusting to higher interest rates and tighter liquidity. These measures may bring down inflation and restore price stability, but they’ll also weaken the economy and labor markets.
Key Takeaways
We think recession is the most likely outcome as the strong medicine of higher interest rates to cure rampant inflation takes a toll on the global economy, consumers and investors.
Beware of bear market rallies.
We see the potential for short-lived stock market rallies before the market finally establishes a bottom and begins the ultimate recovery.
Bond portfolio positioning reflects recession risk.
We have a bias for quality and are adding duration exposure as we expect longer-maturity yields to decline as recession risk rises.
The strong dollar has broad repercussions.
The surging greenback hurts U.S. exporters and multinationals selling into weaker-currency markets, weighs on emerging markets returns and challenges countries with dollar-denominated debt.
Questions about China remain, but Emerging Markets outlook improves.
Despite lingering questions about Chinese government policy and the public’s impatience with COVID restrictions, we remain positive on companies positioned to benefit from the government’s stated plans.
The $31 trillion U.S. national debt is a 2023 wild card.
Divided government raises the specter of a debt-limit standoff between the U.S. House of Representatives and the White House that could threaten the nation’s credit rating and spur market turmoil.
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.