Explore Our investment Outlook
Explore Our investment Outlook
Medical researchers and health organizations worldwide have made remarkable progress in preventing and treating COVID-19. The rollout of multiple effective vaccines is providing more solid footing toward normalization.
The world economy is healing as well. Aided by governments’ commitments to accommodative interest rate policies and increasingly large fiscal stimulus packages, International Monetary Fund researchers are expecting the global economy to grow a robust 5.5% in 2021.1 And, with progress in reopening the most damaged parts of the economy, corporate profits are climbing out of a deep hole with companies offering clearer outlooks for future profits.
The market has rewarded companies benefiting from the increased demand for cloud computing, 5G and expansion of e-commerce and digital payment services since the start of the pandemic. Investors have also gravitated to businesses tied to remote working, telemedicine and other coronavirus-related practices that are likely here to stay.
Now, a broader swath of the market is participating in these advances. Cyclical stocks are rising on expectations that improving health and economic conditions will unleash pent-up demand. Beneficiaries should include energy companies, automakers and businesses related to leisure travel. Banks could also experience a tailwind, especially if interest rates continue to rise, and losses from bad loans aren’t as extensive as originally expected. These developments are positive for value-oriented portfolios, which have historically outperformed during periods of rapid economic growth.
Smaller companies are rising, and we believe they still have room to run. Small caps have historically performed well coming out of recessions, and forecasts call for their earnings growth to outpace that of large caps this year.2 With nearly one-third of their profits derived from the housing market, U.S. small caps are also benefiting from the pandemic-related trend of households moving from urban settings to the suburbs.3
In emerging markets, analysts are projecting earnings to outperform developed markets again this year. We expect broader participation with estimates for all sectors in positive territory.4 Along with vaccine progress and stimulus, emerging markets are benefiting from the improving growth outlook and a weaker U.S. dollar.
We believe investors should be evaluating their portfolios with an eye toward the potential for higher inflation. We don’t expect destructive runaway inflation reminiscent of the 1970s, but we think the U.S. Consumer Price Index will rise through the rest of the year. Don’t be surprised by periods above the 2% historical norm.
After years of unusually low inflation, we recommend our clients review how their overall investment strategies incorporate inflation management and protection.
After a long year, these March days with glimpses of warmer times to come seem particularly sweet. Unlike a year ago, when uncertainty was so widespread, we now see more clarity looking ahead.
Thank you for entrusting us with your assets.
1 ”World Economic Outlook,” International Monetary Fund, January 2021.
2 FactSet, Dec. 31, 2020.
3 FactSet, Standard & Poor’s and Jefferies, Dec. 31,2020.
4 FactSet, Dec. 31, 2020.
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.
Diversification does not assure a profit nor does it protect against loss of principal.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
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.
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