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Investment Outlook

Q2 2023

Looming Recession Puts Fundamentals in Focus

Even before the Silicon Valley Bank collapse, investors had a long list of concerns as they braced for a potential recession. Last year, they witnessed the destruction of trillions in market value amid worries about record-high inflation, aggressive interest rate hikes, the war in Ukraine and China’s evolving COVID policy. Now, you can add banking system instability to that list.

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Key Takeaways

The bank crisis should accelerate the recession timeline. We expect banks to tighten their lending standards, essentially doubling down on the impact of the Federal Reserve’s (Fed's) rate-hiking regime.

  1. Caution is shaping our mindset.

    With unanswered questions about the depth, duration and magnitude of a likely recession and new worries about bank stability, we’re maintaining a conservative stance with an emphasis on higher-quality securities.

  2. Bond yields are back.

    After the Fed-fueled rout, fixed-income investors entered the year at a good starting point with yields at or near multi-year highs across bond sectors.

  3. It’s still too early to be aggressive.

    Although stocks have shown signs of life to open the year, a likely recession and shrinking corporate earnings could lead to a bumpy road ahead.

  4. Emerging markets (EM) equities may be poised to turn the corner.

    We believe EM corporate earnings have bottomed and may be on pace to recover faster than developed markets.

  5. ESG pushback is a U.S. issue.

    An American Century Investments survey reveals that impact investing’s appeal is growing, except in the U.S., where the term “ESG” (environmental, social and governance) has been politicized. Despite recent pushback, U.S. interest in impact investing has grown significantly since 2016.

Q2 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.