Multi-Asset Strategies Outlook

Explore Our investment Outlook

COVID Still Determines the Market’s Direction

Stocks are at record highs despite an economic slowdown, higher inflation and looming Fed rate hikes. What gives? While it’s dangerous to oversimplify, we think it can be summed up in one word: COVID. Many of the global economy’s challenges can be attributed to the pandemic, so progress on the disease leads to optimism on a whole range of critical economic issues.

Why COVID Still Matters

All over the world, pandemic-related disruptions hurt labor markets, global supply chains and consumer demand. The health of the job market is essential because, together with consumer demand, these are critical elements of economic growth.

Global supply chains matter because when they function well, they help suppress inflation. But when they function poorly, they have the opposite effect and contribute to higher inflation.

Think back to your old Econ 101 textbook supply-and-demand chart. COVID is a supply shock, hurting output at factories and businesses worldwide and snarling transportation networks. Supply shocks don’t just cause you to move up the supply curve; they cause the entire curve to shift higher—resulting in less output (slower economic growth) and higher prices (inflation).

Or think about the oft-used phrase “inflation is transitory.” What people are saying when they argue inflation is transitory is that they believe we can reach herd immunity, and COVID-related supply disruptions can be overcome. Said differently, the supply curve will soon return to its prior state, with prices declining and output increasing.

Other Considerations Include China and the Fed

The market sold off in September 2021 amid worries about Fed policy and events in China. Consider that in 2022, the Fed is almost sure to begin raising rates in earnest. And we still face uncertainty around China’s energy policy, corporate regulations and the fate of its leading property development companies. Such uncertainty and potential volatility argue against overexuberance and for sticking to a well-diversified approach. 

Asset Class

It’s times like these that we are happy to remain neutral and stick to our long-term strategic stock/fixed-income weights. On the one hand, stocks are at record highs even as the economy slows, and the Fed is expected to raise rates. On the other hand, earnings growth is strong, and earnings yields are attractive relative to bonds. Within our fixed-income allocation, however, the interest rate and inflation backdrop mean we favor cash over long-term bonds. 

Equity Region

We believe the outlook for non-U.S. developed-market equities is positive, so we maintain our long-term strategic allocation relative to U.S. stocks. Outside the U.S., relatively lower inflation argues for continued low interest rates, which help support economic and market recoveries and valuations. Nevertheless, we remain neutral due to comparatively strong economic and market momentum in the U.S. keeps us from overweighting non-U.S. equities. 

EM equities have endured a difficult period of late. But even as equity prices declined, the outlook for earnings growth brightened along with prospects of a global recovery. However, China’s ongoing economic and regulatory challenges create uncertainty in the space. As a result, we remain neutral on the asset class, preferring to rely on individual security selection decisions to identify opportunities in our EM allocation. 

U.S. Equity Size & Style

We continue to view small-cap stocks favorably relative to large ones. The primary factor arguing for a small-cap overweight is their attractive relative valuations. This reflects that small stocks have underperformed large for the year to date, despite producing robust earnings growth as the economy recovers from the worst of the pandemic.

For several quarters now, we’ve been writing about how our growth/value model’s bias toward value has been easing. Now, it’s back to neutral as the investor sentiment portion of our model continues to shift back toward growth. Other fundamental factors arguing for a neutral weight include higher interest rates, which favor value, and an economic slowdown, favoring growth.

Fixed Income

High and rising inflation and the end of the Fed’s bond-buying program argue for rising long-term bond yields. As a result, we are cautious on Treasury bonds, except for inflationprotected securities. Corporate bonds, in contrast, offer more attractive yields and benefit from solid profit growth. Select developed market government bonds are more attractive than Treasuries, while we favor EM sovereign debt over developed markets. 


Our model increasingly favors stocks and bonds relative to real estate investment trusts (REITs). REITs look less attractive compared with other high-quality, high free cash flow, lower volatility investments. However, this space is highly differentiated by industry and geography, meaning we have opportunities for stock selection. In addition, some REITs incorporate inflation adjustments, making them more resilient to rising rates and inflation.

Q1 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.

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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