Investment Outlook: Turbulence Ahead but Opportunities Remain

Here are key takeaways from our Q1 2019 Investment Outlook report:

  • Concerns about trade, rising rates and growth that drove volatility in 2018 are still in play, so we expect the turbulence to continue in the new year.
  • We attribute the flatter yield curve to Federal Reserve (Fed) tightening, not a looming recession. We expect the yield curve to resume a more-normal slope once the Fed achieves normalization.
  • An environment of moderating economic and earnings growth should favor secular growth companies, while periodic volatility will create opportunities to buy high-quality companies that are victims of indiscriminate selling.
  • Stocks with less exposure to U.S.-China trade tensions, including smaller firms that derive most of their revenues from local sources, may offer attractive opportunities.
  • Despite a challenging year in 2018, emerging markets (EM) fundamentals remain strong, and we believe EM continue to warrant an allocation in well-diversified portfolios.
  • Absent further escalation in trade or geopolitical conflicts, we expect healthy economic growth to push 10-year Treasury yields higher, eventually settling in a range of 2.75% to 3.25%.
  • In the wake of recent volatility, we believe EM sovereign and corporate debt are fairly valued overall, particularly compared with U.S. credit. However, heightened country-specific risks underscore the importance of remaining selective.
  • In this environment, investors should consider uncorrelated sources of return through alternative fixed-income sectors, such as asset-backed securities (ABS) and collateralized loan obligations (CLOs).

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Important Notices and Disclosures
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 risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Alternative mutual funds that hold a variety of non-traditional investments 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.
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.
As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.
Historically, small- and mid-cap stocks have been more volatile than the stocks of larger, more established companies.
Diversification does not assure a profit, nor does it protect against loss of principal.
Generally, as interest rates rise, bond values will decline. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. 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 the chief investment officers and are no guarantee of the future performance of any American Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been received in connection with such views.
This information is not intended to serve as investment advice. The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment, accounting, legal or tax advice.
American Century Investment Services, Inc., Distributor. © 2018 American Century Proprietary Holdings, Inc. All rights reserved.