Multi-Asset Strategies Outlook

Explore Our investment Outlook

From the Frying Pan into the Fire — From Inflation to Recession

We are at a crucial transitional moment in financial markets. For much of 2021 and the first several months of 2022, markets worldwide were worried about one thing and one thing only — inflation.

Markets Refocusing on Recession Risk

However, you can see the market’s sudden turn from worry about inflation to recession in bonds’ performance. The benchmark 10-year Treasury note yield peaked at 3.12% in early May but has rallied aggressively. High-quality, government-backed bonds are much more attractive during economic downturns when investors place a premium on safety. While Treasury bonds have begun to rebound, corporate-backed securities are lagging. The more pro-cyclical, equity-like junk bonds are losing value because they’re more sensitive to economic growth. At the same time, we’re seeing a rotation in the stock market where economically sensitive issues are suddenly giving up ground.

Uncertain Conditions Make a Case for Strategic Diversification and Active Management

The economic data support this sudden about-face. The housing market appears to have peaked—prices remain at all-time highs, but mortgage rates in May touched their highest level since 2009, helping explain the more than 10% drop in home sales in April compared with a year ago. Similarly, inflation rose just 0.3% in April, matching the lowest monthly rate of increase since August 2021.

We think these conditions make a compelling case for active rather than passive investment approaches. Consider that our analysts go company by company, doing fundamental research on a company’s exposure by commodity, input, ability to raise prices, length of contracts, etc. It’s a tedious, deliberative process. But you can be sure that passive index-based approaches aren’t doing this sort of homework. We believe this period of historically high inflation and looming recession demands active investment analysis and security selection.

Asset Class

In our view, the current environment makes a robust case for long-term strategic diversification. In economic terms, we may be at a turning point where inflation has finally peaked while the economy faces the rising risk of recession. In market terms, higher interest rates and the threat of slower economic growth have implications for performance across and within asset classes.

Equity Region

Non-U.S. developed equities have lagged the U.S. for several years, resulting in comparatively more attractive valuations. However, the prospect of a sharp economic slowdown in Europe due to the war and sanctions tempers the outlook. The impact of sanctions and slower growth are not distributed evenly across the economy, creating a significant opportunity to add value through individual security selection.

We’re neutral on emerging markets equities (EME) as the asset class endures volatility resulting from the economic, inflation and market consequences of Russia’s invasion of Ukraine. The threat of a global economic slowdown further complicates the EME outlook. So, this is an asset class where we remain neutral at a high level and rely on individual security selection to identify opportunities in this broad, diverse asset class.

U.S. Equity Size & Style

Small-company stocks have offered greater risk and return compared with large-cap stocks over time. After underperforming large caps for several years, small caps now offer compelling relative valuations alongside strong earnings growth. As a result, we are overweight small stocks. Nevertheless, we are vigilant against a potential economic slowdown because small stocks tend to be sensitive to changes in growth.

Given macroeconomic and geopolitical uncertainty, we favor defensive positioning within our U.S. equity holdings. Late in the economic cycle, select value-oriented sectors and industries tend to hold up better. And while we are currently underweighting growth, our equity managers have been working hard to upgrade their holdings into stocks they believe have upside and growth potential.

Fixed Income

Higher yields make Treasuries relatively more attractive, while worries about a slowdown will increase bonds’ appeal due to their diversification and perceived safe-haven characteristics. We remain overweight Treasury inflation-protected bonds and underweight mortgage-backed securities. We are looking to move up in credit quality within corporate securities and are cautious on the most economically sensitive issuers.


Real estate investment trusts (REITs) continue to have a role in portfolio construction diversifiers of stocks and bonds. They tend to perform well in strong economies, have historically provided inflation protection and often exhibit strong environmental, social and governance characteristics. However, we’re underweight on a tactical basis because rising mortgage rates, indications of a slowing economy and widening credit spreads undermine their attractiveness.

Q3 2022 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.