Multi-Asset Strategies Outlook

Explore Our investment Outlook

Caution Reigns When There’s No Shortage of Reasons for Uncertainty

Before COVID-19, the economy was humming along with unemployment at record lows and stocks at record highs. Some six months later, the economy is recovering from the worst downturn since the Great Depression, there’s no cure for the virus and unemployment has surged. Yet, after climbing out of bear market territory, stocks were trading near all-time highs at the time of this writing. Despite all this, we’re not negative on stocks. But with no cure for the virus in sight and the economic recovery still ongoing, we think it’s only prudent to expect some volatility ahead. 

Our data show that market volatility typically increases in the months before a presidential election and gradually subsides thereafter. Historically, markets have tended to go up no matter which party controls the White House, so we see no reason to make portfolio changes solely because of real or imagined electoral concerns. 

Unemployment is well under 10% again and all the high-frequency data are showing a snapback. That’s great, and we’ll benefit as we get people back to work and return to some semblance of normalcy. But even while we’re encouraged by the pace of the recovery to date, the reality is that we remain well below pre-virus levels of economic activity in a range of areas. Further, it’s hard to know the longer-term scarring effects on the labor force.

The Fed has all but said that it’s locked into zero interest rates for the foreseeable future, with expanding the economy an explicit goal. So even though financial stresses have eased considerably since March, don’t expect Fed Chair Jerome Powell to take his foot off the gas pedal. That’s likely to prop up stock and bond prices, weigh on the dollar and help stoke the economic recovery.

Asset Class

At a sub-asset class level, we see select opportunities to add value, but at the highest level we’re sticking to our long-term, strategic allocations. While strong price momentum and comparatively attractive earnings yields continue to argue for stocks over bonds, our qualitative assessment is that uncertainty remains for earnings and the economy. Overall, we are sticking to our neutral allocation across the target-risk portfolios. In our retirement portfolios, however, we have a slightly more cautious view of stocks for risk-averse investors in or near retirement.

Equity Region

Every component of our model points in favor of U.S. equities over non-U.S. developed markets. The strongest component reflects the recent rebound in U.S. manufacturing activity amid signs of a broader economic recovery.

Economic data are all over the map because of effects of the virus and efforts to combat it. Our data and valuations favor EM equities, while momentum clearly favors the U.S. Given that split, we’re neutral while we work to discern a clearer and more stable trend. 

U.S. Equity Size & Style

We remain neutral after removing our small-cap bias in recent months. Data here are volatile and fluctuating significantly month to month amid the economic recovery, so we continue to evaluate conditions and look for compelling data to emerge.

We have been consistently overweight U.S. growth stocks for years. This strategy has been successful over time, but particularly in recent months, when growth has outperformed value by the widest margin in decades.

We still favor growth but are trimming our overweight by 50% due to changing economic and market conditions. With growth outperformance at historical margins and key economic indicators rebounding from their lows, growth’s attractiveness has lessened. (When economic and earnings growth are scarce, investors are often willing to pay higher prices for growth stocks.)

Fixed Income

Thanks to Fed intervention, we’ve seen a massive rally in credit markets since late March, but we see opportunities in select markets. With the Fed putting a stake in the ground and effectively calling for higher inflation, we think TIPS look attractive at these levels. We’re also finding good values in municipal bonds, select non-agency mortgages and corporate bonds at the center of the pandemic, such as airlines and hotels. European credit is less attractive because of slower growth and historically low yields.


We retain our overweight to real estate investment trusts (REITs), which we believe are very attractive relative to bonds. Of course, this is an area where issue selection is very important—some property sectors like office and retail face increased headwinds because more people are working from home. But many REITs benefit directly from secular trends the virus has accelerated—these include data centers, industrial warehouses and cellular tower REITs, among others.

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.

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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