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Portfolio Playbook: Still quality-focused

Global economic indicators are modestly improving amidst a weak economic backdrop. In October, we remain focused on higher-quality stocks and bonds. Optimize your portfolios with our monthly outlook and allocation guidance.

New York City views

We continue to focus on higher-quality stocks and bonds.

Our macro framework has accurately predicted that the business cycle would remain intact, though economic activity would slow.1 That seems to be the prevailing environment. Global financial markets have been reluctant to fully price in a low-growth environment. But US Treasuries have rallied, large-cap stocks have outperformed small-caps, and quality has outperformed value, which aligns with the growth headwinds we’ve identified.2 Also, cyclical sectors have delivered only modest earnings growth.3

As we assess the next stage for the economy, our preferred risk appetite indicator remains positive but lacks clear momentum. Meanwhile, our global leading economic indicator is rising toward its long-term trend. Policy easing in the US could support a reacceleration in activity, even as labor demand remains weak. The upshot is that we remain in a contraction regime and are watching for further signs of renewed momentum. So we maintain exposure to higher-quality stocks and bonds, consistent with a cautious stance amid ongoing uncertainty.

Business cycle

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  • Recession doesn’t appear imminent
  • Broad-based economic statistics not collapsing 
  • Credit spreads still contained

Risk profile

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  • Risk appetite is positive but directionless
  • Leading economic indicators are rising towards trend

Policy implications

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  • Federal Reserve likely to look beyond tariff price shocks
  • Further rate cuts are expected

Business cycle

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  • “Soft landing” for economy
  • Resilient growth
  • Contained inflation

Risk profile

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  • Above-trend global economic rate 
  • Improved policy backdrop
  • Risk-on sentiment

Policy implications

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  • Contained inflation
  • Easing Fed policy

Business cycle

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  • Deteriorating sentiment
  • Rising trade and monetary policy uncertainty
  • Reaccelerating inflation
  • Prolonged recession

Risk profile

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  • Deteriorating leading economic indicators
  • Flight to quality 

Policy implications

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  • Tightening Fed policy 

Asset allocations to consider: 
In October, we remain overweight in defensive sectors.

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).



  • 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.



  • 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.



  • 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.

  • 1

    Source: Invesco, Sept. 30, 2025, based on Invesco proprietary global leading economic indicators. Slowdown is the ongoing slowdown in the growth of US nonfarm payrolls, based on the National Bureau of Economic Research (NBER), which hasn’t signaled the end of the business cycle. The Invesco proprietary global leading economic indicator defines the slowdown. The NBER determines when business cycles end in the US. Based on its data and conclusions, the business cycle has remained intact.

  • 2

    Source: Bloomberg L.P., Sept. 30, 2025, based on the year-to-date change in the 10-year US Treasury yield, the performance of the S&P 500 Index compared to the Russell 2000 Index, and the performance of the S&P 500 Quality Index and the S&P 500 Value Index. The 10-year US Treasury rate opened the year at 4.56% and had fallen to 4.15% on Sept. 30, 2025. The S&P 500 Index returned 14.81% compared to 10.38% for the Russell 2000 Index, year-to-date, as of Sept. 30, 2025. The S&P 500 Quality Index returned 10.38% compared to 9.68% for the S&P 500 Value Index, year-to-date, as of Sept. 30, 2025

  • 3

    Source: Bloomberg L.P., Sept. 30, 2025. The cyclical sector saw 3% earnings per share, 1% sales per share percentage change, and 1% EBITDA (earnings before interest, taxes, depreciation, and amortization) margin since the beginning of the contraction regime (July 2024–Sept. 2025). The cyclical sector is represented by the stocks in the S&P 500 Cyclical Index.