Q4 2020: Investment Outlook

Key Takeaways

  • We expect uncertainty around the upcoming U.S. election to lead to volatility in the weeks leading up to November’s vote.
  • Global economies are rebounding from the pandemic’s initial shock, but the strength and sustainability of the recovery remain unclear.
  • With COVID-19 changing work habits and consumer preferences, we see opportunities in companies that support remote working, online learning, mobile gaming and e-commerce.
  • We believe high valuations and the narrowness of the market’s strong rally off March lows have elevated risk in U.S. stocks.
  • The unsettled outlook for global trade will likely remain a headwind for emerging markets until we get clarity about the state of trade negotiations after the U.S. election.
  • Our Multi-Asset team is trimming its long-running growth overweight by half as economic indicators rebound and the outlook improves for stocks outside traditional growth sectors.
  • We have a positive outlook for TIPS due to upward pressure on inflation and the Fed’s willingness to tolerate periods of higher inflation over time. 
  • In the low-rate environment, U.S. Treasuries and other sovereign securities likely will remain rangebound. Accordingly, we are selectively seeking opportunities in the credit, muni and emerging markets debt sectors.

Some Things Will Never Be the Same

This issue of Investment Outlook may find you in a home office or temporary workspace that’s starting to feel permanent. You might also be working odd hours to accommodate a child’s remote school schedule. You’re probably wearing informal clothes nice enough for video meetings and answering your door to accept deliveries of food and other online purchases.  

These lifestyle changes illustrate how we’re navigating COVID-19. Eventually, we’ll return to something we consider normal, but some of the ways we learn, work, shop and entertain ourselves will never be the same. Our portfolio teams are finding this transformation in the investment themes now emerging for the post-pandemic world.

Habits and Preferences Are Shifting

Second-quarter earnings reports reflected the pandemic’s acceleration of cloud computing, the Internet of Things, digital payments and buildout of the 5G cellular network. Overall, corporate earnings posted their biggest declines since the financial crisis. But companies providing technology that enables working from home, videoconferencing, video streaming and social networking reported some of the best results.  

Shifting preferences go beyond technology. Many brick-and-mortar stores, restaurants and travel-related businesses have closed or seen profits fall sharply. Meanwhile, adaptable businesses with strong e-commerce capabilities have seen earnings grow. These companies include manufacturers of work-from-home leisurewear, the technical term for those comfortable clothes I mentioned earlier.

Change Is Global

The pandemic is also driving long-term structural changes in emerging markets where e-commerce is expanding. Older consumers are taking advantage of the convenience and safety of grocery deliveries. There’s also been a rapid shift to online education. 

Further, the pandemic is driving innovation in telemedicine to help meet surging demand for quality health care in emerging markets. For instance, in China, a country with limited health care facilities but an estimated 850 million mobile internet users, online medical visits are increasingly popular. 

Stocks Are True Independents

We expect uncertainty about the general election’s outcome to stoke market volatility. We think this volatility will ease as the outcome becomes clear and some investors adjust their portfolios to the political landscape. With that in mind, consider not taking any action beyond confirming that your portfolio still aligns with your investment goals and tolerance for risk. Stocks are true independents. Historically, U.S. election results haven’t driven financial market outcomes over time.

Thank you for investing with us.

Q4 2020 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.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

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.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

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.

Past performance is no guarantee of future results. Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds. 

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.

This information is for educational purposes only and is not intended as investment or tax advice.

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