Investment outlook

Multi-sector asset allocation outlook

Multi-sector asset allocation outlook

Read the latest insights from Invesco’s Fixed Income team.

Macro factor summary

We believe US and European growth will be slow, but positive, over the balance of this year. Growth momentum continues to surprise, and the outlook for the energy supply in Europe and the housing market in the US has improved. We also believe we are in a disinflationary period where the excesses introduced by pandemic stimulus are working their way out of the system and price pressures are easing.

Core inflation has started to decline in the US, and we expect European inflation to follow. Supportive of this thesis, wage increases seem to be slowing. Despite this positive fundamental backdrop, central banks continue to run tight monetary policy. This is pressuring financial markets – failures of US regional banks are a great example – and will likely keep volatility elevated.

Asset allocation summary

We favour high quality credit assets in the current environment. The overall level of fixed income yields remains attractive, valuations are close to medians for investment grade credit, and US corporate fundamentals look attractive. Investment grade bonds will likely gain some protection from embedded duration if a recession occurs. In the medium term, we favour fixed rate bonds, as current real yields are attractive versus historical levels, even if, in the shorter-term, we are toward the bottom of our expected near-term yield range.

Risk position summary

We have a neutral risk positioning stance. The end of the central bank tightening cycle and better than feared news on economic growth point to a soft landing for the global economy and should provide a tailwind for risky assets. However, continued political and economic uncertainty argues for staying slightly cautious.

Download the full multi-sector asset allocation outlook below.

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