A global fund manager has forecast the United States economy is heading for a “softilocks” landing, a middle ground between a hard recession and runaway inflation, with investors encouraged to maintain a long-term, diversified approach as conditions stabilise.
“We think what’s likely to happen is somewhere between a soft landing and a mild recession. That means growth may slow down to just above zero, but does not collapse,” American Century Investments global fixed income co-chief investment officer Charles Tan noted during a briefing held by his firm recently.
“Unemployment may go up to mid or even high 4 per cent and we believe inflation over the next six-to-12-month time horizon will continue to trend lower to perhaps 1 to 2 per cent. It’s more like a bumpy landing scenario.
“While the [US Federal Reserve] has been tightening, it has been overpowered by the trillions of dollars of a fiscal [stimulus], which is a debt we have to pay sometime into the future, but for the past couple years, and maybe in the foreseeable future, it will produce some positive impact into the economy.”
Tan added this outlook for a moderated economic path underscored the importance of a well-rounded, long-term strategy.
To this end, American Century chief investment officer Victor Zhang pointed out recent stability across a range of asset classes had highlighted the value of adding balance and diversification to an investment portfolio.
“Capital markets have really enjoyed a period of calm and healthy development, from fixed income to equities, from large cap to small cap, from US to overseas, from developed to emerging,” Zhang noted.
“Nearly every asset class [included] in a diversified portfolio has [had] positive returns over the last year, so in this backdrop it’s hard to imagine that investors should not consider being diversified.
“Having a long-term approach is working, so that is probably the biggest excitement every investor ought to have. Continue on your path, have a sensible asset allocation policy and stay diversified.”
American Century multi-asset strategies chief investment officer Richard Weiss emphasised this approach remains sound regardless of the outcome of the US election, advising investors to maintain a rational perspective.
“We always recommend to not bet on the elections with your investment portfolios. It’s a very low-probability, high-risk, low-pay-off type of bet because you not only have to be right on who wins, they have to actually enact everything the [parties] say they are going to do, which is doubtful,” Weiss said.
“The only defence you have is to diversify because by definition you don’t know where [the risks are] coming from.”
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