Explore Our investment Outlook
Inflation, lingering supply chain issues, the ongoing conflict in Ukraine and lockdowns in China cloud the outlook for global equities. In the U.S., the Fed intends to wrestle inflation under control. We expect higher rates and softening demand to weigh on stocks in general.
As these high-level factors weigh on markets, fundamental analysis has become increasingly vital for us to identify unique opportunities.
A recession is a possibility in the U.S., leading to the question of when markets will bottom, and recovery can begin. We don’t attempt to predict market cycles and won’t try to call the bottom of this one. We believe attractive, long-term investment opportunities exist in all market conditions. So, we seek companies with idiosyncratic growth drivers that may be better positioned to weather the current pressures.
We saw many examples of positive surprises in recent corporate earnings reporting. But we also received a swath of negative news from consumer-facing companies.
Advertising revenue among several social media stalwarts is declining. Retailers, including many that had previously resisted the Amazon effect of the shift to online shopping, disappointed. Target, Walmart and Kohl’s, for example, issued profit warnings and lowered future guidance, citing softening demand and increasing freight and logistics costs. Meanwhile, China’s supply problems and production slowdowns continue to pressure semiconductor makers and companies that make cars and auto parts.
As a result, we expect corporate earnings to remain challenged as we move into the year’s second half. The Ukraine situation will continue to weigh on commodities and supply chains until a resolution is found. The outlook for companies in Europe remains clouded. China’s relationship with Russia is complicated, further obscuring the outlook for companies in Eastern Europe and Asia.
We note the shift in consumer spending from home improvement and nesting in favor of experiential purchases. Travel-related spending is increasing sharply. Airline and hotel bookings are up. And so is spending on luggage, travel and leisure apparel, airport shops, and necessities such as cosmetics and toiletries. We continue to find company-specific growth drivers, even in hard-hit sectors, including technology, industrials, materials and consumers.
A more hawkish Fed, uncertainty in Ukraine and China’s zero-COVID policy remain headwinds. Nevertheless, we expect improvements in the second half of the year and 2023.
Lockdowns in China continue to snarl global supply chains, but the situation is improving. After growth momentum decelerated sharply due to tighter controls, we think the most significant disruption to production and trade activities has likely passed.
China’s government has announced ongoing policy support, including infrastructure spending and property easing. We expect continued improvement in the second half of 2022 as authorities ease COVID restrictions, reducing transport and industrial production disruptions.
We believe China’s stimulus can also benefit select commodities and metals producers beyond China, including Brazil and South Africa. Elsewhere in Asia, many economies have made significant progress on vaccination and have sustainably opened their economies. Opportunities exist in Thailand and Indonesia.
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.
No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.