Markets and Economy US stocks bear the brunt of global economic uncertainty
The global economic outlook is uncertain, yet European, UK, Chinese, and Japanese stocks all rose last week while US stocks fell.
April 22, 2025
Optimize your portfolios
Portfolio Playbook: Staying defensive as trade war begins
US trade policy is causing substantial volatility. In April, we continue to favor bonds and low volatility and quality US stocks. Optimize your portfolios with our monthly outlook and allocation guidance.
European growth rebounds as US business and consumer sentiment weakens.
Investors were hoping for clarity on Liberation Day but instead got an escalation of the trade conflict. US leading indicators have softened, led by significant weakness in business and consumer sentiment surveys, negatively impacted by higher global tariffs and persistent policy uncertainty.
Global risk appetite continues to weaken, as global stocks underperform bonds year-to-date and credit spreads widened across all fixed income sectors over the past month.
Our systematic macro framework remains in a contraction regime, even as leading economic indicators improve across regions. We’re maintaining defensive portfolio positioning, favoring bonds over stocks, and underweighting credit risk. We’re overweight low volatility and quality stocks and staying neutral developed ex-US stocks relative to US stocks.
Business cycle
- Risk of recession is elevated.
- “Hard” US economic data remains resilient.
- Sentiment is deteriorating rapidly.
Risk profile
- US sentiment is weakening.
- Global risk appetite deteriorating as policy uncertainty mounts.
Policy implications
- Near-term price shock is looming.
- Long-term inflation expectations are plunging.
- Fed increasingly likely to cut rates.
Business cycle
- Economy experiences “soft landing” as growth remains resilient and inflation contained.
Risk profile
- Global economy climbs to above-trend rate, driven by policy easing.
- Risk-on sentiment returns as investors look to reinvigorated economy.
Policy implications
- Inflation remains contained.
- Fed eases policy amid a strong growth environment.
Business cycle
- Sentiment deteriorates as trade and monetary policy uncertainty rises.
- Inflation reaccelerates and Fed tightening is expected.
- Prolonged recession emerges.
Risk profile
- Leading economic indicators meaningfully deteriorate.
- Flight to quality as economy deteriorates.
Policy implications
- Rising inflation forces Fed to tighten policy.
Asset allocations to consider: In April, we’re still favoring bonds and high quality US stocks.
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).
About our allocations
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The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
About our allocations
-
The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
About our allocations
-
The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
Additional resources
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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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Tightening is a monetary policy used by central banks to normalize balance sheets.
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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.
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