Explore Our investment Outlook
Explore Our investment Outlook
While many growth stocks have seen pullbacks as interest rates have risen, we believe several investment themes remain robust. As growth investors, we have a dual role of being selective and participating in transformative innovations that will redefine our future. Three themes in which we see potential opportunities include:
At no time since Henry Ford has the auto industry seen so much change. General Motors, Volkswagen and Ford, among other automakers, plan to move from internal combustion engines to electric power by the mid-2030s.* At the same time, Google, Amazon, Hyundai, Aptiv, Lyft and other companies have logged millions of test miles in autonomous vehicles that should be commercially operative starting in 2023. ** Potential beneficiaries to the shift to electric vehicles include traditional automakers, semiconductor companies and rideshare firms.
Rising rates of obesity and diabetes have escalated to pandemic levels. Diets focused on satisfying taste rather than providing healthy nutrition, increases in urban living and sedentary work patterns are contributing risk factors. New drugs, wearable tech devices such as insulin pumps and continuous glucose monitoring systems, and telehealth and telemedicine services are helping battle these chronic diseases.
The broad availability of faster computing and data transmission is putting technological advances within reach that we previously thought economically infeasible. These developments range from enabling computational biology that improves drug discovery to making autonomous vehicles react more quickly than humans. The same technology connects us to our data everywhere. Maybe we won’t be all working from home after the pandemic, but we may be able to work from almost anywhere.
*“Volkswagen to Go All Electric by 2026,” Industry Europe, September 26, 2019. “GM Boosts Investment, Grows Electric Portfolio to Lead in EV Race,” GM Corporate Newsroom, November 19, 2020. Andrew J. Hawkins, “Ford Says It Will Go All-Electric in Europe by 2030,” The Verge, February 17, 2021.
**“40+ Corporations Working on Autonomous Vehicles,” CB Insights, December 16, 2020.
Due to the accelerated adoption of digital technology during the pandemic, 2021 could mark an inflection point for the broader implementation of collaborative and flexible automation technologies. Robots are combining new technological developments, like artificial intelligence and the Internet of Things, with automated robotic technology. Humans and “cobots” (complex machines that work in tandem with humans) are increasingly working together to drive intelligence, process automation, increase efficiency and purge low-value activities. Progressive industrial companies may benefit from this trend over the long term.
Bank customers are becoming more reliant on digital channels, including online, mobile and call centers. This dependence has underscored the opportunity digital transformation offers banks to deliver new services. With these services making the proximity of banking centers less important for choosing a bank, innovative and convenient technologies enhance branding and reputation. In addition, business efficiencies achieved through digitization are essential to reduce the costs of serving customers as banks contend with severe margin pressures. The rising importance of scale for delivering best-in-class digital services may also drive further industry consolidation.
Companies in the health care sector are undergoing a shift from simply storing data to extracting insights that support population health management and value-based care. Newer medical devices such as electronic sensors in knee implants, imaging-analysis algorithms and point-of-care diagnostic tools typically improve procedure outcomes and lead to better results. Robotic surgical technology allows physicians to perform minimally invasive procedures with more precision and control. Innovative digital technology enables drug delivery tools to deliver drugs more effectively and efficiently. Society benefits from better patient outcomes, and companies can potentially realize higher returns on invested capital.
If rates, the economy and markets are rising, gold will likely remain under pressure. On the other hand, a spike in volatility or uncertainty would support gold’s price—e.g., an unanticipated delay in achieving herd immunity or the anticipated economic rebound failed to materialize. Gold proved to be an effective hedge against uncertainty in 2020, when it was among the best-performing asset classes. Similarly, an unexpected surge in inflation—potentially driven by global stimulus or a stronger-than-anticipated economic recovery—should provide support for gold.
As we draft this edition of the outlook, conditions are the exact opposite of those at the height of the pandemic—economists and investors all seem certain that we’re past the worst of the virus and a massive economic rebound is in the cards. To the extent this is true and it’s smooth sailing ahead, then there’s likely less investment demand for gold as a hedge against uncertainty. Of course, it’s impossible to know when we’ll achieve herd immunity, or how the evolving strains of the virus might affect progression of the disease. So, while it’s reasonable for economists to hike their growth forecasts as COVID-19 cases fall, we acknowledge the possibility that they’re wrong, or the anticipated recovery will be less robust than imagined. In these sorts of scenarios, gold could well see a resurgence of perceived safe-haven demand.
Our proprietary model of risk and financial conditions remains positive on equities despite the surge in volatility and yields in the bond market. Of course, there are risks—if inflation surprises to the upside, then both stock and bond markets are vulnerable in the short run. But we’d remind investors that even though stocks have come off their recent highs, the economy and corporate earnings growth have been coming in much stronger than anticipated. A rising economic tide generally lifts all financial boats, and value-oriented and economically sensitive equity sectors, such as financials and energy, could be well positioned.
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.
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.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
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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