Markets and Economy What is an interest rate, and how can it affect you?
Interest rates are the cost of borrowing money or the payment for lending it, and they affect our everyday lives in many ways.
June 9, 2025
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Portfolio Playbook: Focus on quality
Stocks have been resilient, but tariffs are clouding the outlook. In June, we're still favoring bonds and quality US stocks, but reducing international exposure. Optimize your portfolios with our monthly outlook and allocation guidance.
Tariff talk continues to cloud the outlook, but stocks have been resilient.
Instability in global trade policy continues to cloud the outlook. Yet, as US trade policy works its way through the US judicial system, the economic and market reality remains unchanged. Adding to the uncertainty, a broad-based taxation of foreign capital in the US, which could be destabilizing for financial markets, has been proposed. Risky assets have generally overlooked these developments over the past month.
Our barometer of global risk appetite has stabilized, but remains on a decelerating trend, which is historically consistent with deteriorating growth expectations. US leading economic indicators continued to slow, however, led by weak business and consumer sentiment surveys, while hard economic statistics suggest ongoing resilience in labor markets and consumer spending.
Contrary to the resilience in stock markets, downward revisions in earnings expectations have resumed across regions, with sharp deterioration in cyclical markets such as Europe, Japan, and most small open economies tied to global trade.1
Our framework remains in a contraction regime for the 12th consecutive month, with growth below trend and decelerating, so we’re staying defensive We remain underweight risk relative to our benchmark, underweighting stocks over bonds, primarily via an underweight in emerging markets and developed markets outside the US. We remain overweight in defensive sectors with quality and low volatility characteristics.
Business cycle
- Recession doesn’t appear imminent; credit spreads contained
- Resilient “hard” US economic data
Risk profile
- Deteriorating outlook based on US sentiment
- Stabilized global risk appetite even with persistent policy uncertainty
Policy implications
- Tariffs may lead to near-term price shock
- Aggressive central bank easing unlikely
Business cycle
- “Soft landing” for economy
- Resilient growth
- Contained inflation
Risk profile
- Above-trend global economic rate
- Improved policy backdrop
- Risk-on sentiment
Policy implications
- Contained inflation
- Easing Fed policy
Business cycle
- Deteriorating sentiment
- Rising trade and monetary policy uncertainty
- Reaccelerating inflation
- Prolonged recession
Risk profile
- Deteriorating leading economic indicators
- Flight to quality
Policy implications
- Tightening Fed policy
Asset allocations to consider:
In June, we’re favoring inflation-protected securities, US stocks in defensive sectors, and reduced international exposure.
A challenge for tactical investors is preparing for the expected and anticipating the unexpected. The tactical asset allocation (TAA) framework from the Invesco Solutions team is designed to enhance a long-term strategic asset allocation (SAA) by making portfolio tilts based on near-term market views.
The tactical, dynamic factor rotation shown below is also utilized in the Invesco Russell 1000® Dynamic Multifactor ETF (OMFL).
Additional resources
Explore further research and analysis from our market and investment experts.
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The federal government borrows money to pay its bills, and those loans get added to the national debt until they're paid off.
May 30, 2025
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An inflation-protected security is a type of fixed-income investment that guarantees a real rate of return. This means the annual percentage return realized is adjusted for changes in prices due to inflation or other external effects.
Class Y shares are closed to most investors. Please see the prospectus for more details.
Tightening is a monetary policy used by central banks to increase interest rates to slow economic growth and curb inflation.
Investments focused in a particular sector, such as technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
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This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Past performance does not guarantee future results. An investment cannot be made directly into an index.
All investing involves risk, including the risk of loss.
Some products are offered through affiliates of Invesco Distributors, Inc.
The opinions referenced above are those of the author as of June 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Tightening is a monetary policy used by central banks to normalize balance sheets.
There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates to project future interest rate changes and economic activity.
Credit spread is the difference between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate. You can lose money.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Junk bonds involve a greater risk of default or price changes due to changes in the issuer’s credit quality. The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
An investment in emerging market countries carries greater risks compared to more developed economies.
