Markets and Economy Indicators suggest the market likely hasn’t hit bottom yet
April 6, 2026
Optimize your portfolios Portfolio Playbook: Shift to neutral risk
Although the global economy has remained resilient despite the war and energy shock, market sentiment has deteriorated. We’ve moved to a more neutral risk stance, emphasizing higher-quality stocks and inflation-linked securities. Optimize your portfolios with our monthly outlook and allocation guidance.
Market outlook Overweight to stocks with a focus on quality
Before the Iran conflict, growth had been running above trend in the global economy1, supported by resilient demand and relatively constructive financial conditions. The backdrop became fragile as a large energy shock emerged. Escalating geopolitical tensions disrupted global oil supply, raised energy prices, and increased uncertainty at a time when inflation pressures remained a key constraint for policymakers. The economic impact of the shock depends on its duration. Even temporary disruptions can tax global demand. More prolonged ones can leave lasting scars through weaker confidence, delayed investment, and tighter financial conditions.
While leading economic indicators continued to point to underlying resilience, market-based measures of growth expectations and risk appetite have cooled. That’s consistent with a transition from expansion toward a slowdown phase rather than an abrupt downturn1. Inflation momentum has reaccelerated, driven primarily by energy, complicating the policy outlook, especially for energy-importing economies.
Against this backdrop, we’ve moved to a neutral overall risk stance. We maintain a moderate overweight to stocks relative to fixed income, emphasizing defensive characteristics such as quality, earnings visibility, and lower volatility. In fixed income, we favor increased duration as a risk management tool, along with inflation-linked securities, while maintaining a cautious stance toward overall credit risk. This balanced positioning reflects a more uncertain phase of the business cycle with a narrower margin for error.
Business cycle
- Recession doesn’t appear imminent
- Credit spreads widened modestly but remain tight
Risk profile
- Risk appetite has cooled
- Leading economic indicators point to resilience
Policy implications
- Inflation reaccelerating
- Policy outlook less clear
Business cycle
- Resilient growth
- Improving productivity
Risk profile
- War in Iran ends
- Market-based indicators improve
Policy implications
- Inflation expectations moderate
- The Federal Reserve returns to easing mode
Business cycle
- Deteriorating activity
- Widening credit spreads
- Tightening lending conditions
Risk profile
- Deteriorating leading economic indicators
- Flight to quality
Policy implications
- Shift toward easier policy
Asset allocations to consider Tilt towards cyclicals across market capitalizations
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).
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Duration is a measure of the sensitivity of the price (the value of principal) of a fixed income investment to a change in interest rates. Duration is expressed as a number of years.
Inflation-linked securities, or "linkers," are fixed-income investments designed to protect against inflation by adjusting their principal and/or coupon payments based on a consumer price index (CPI).
Diversification does not guarantee a profit or eliminate the risk of loss.
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.
Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in consumer tastes or innovative smaller competitors. Returns on investments in large capitalization companies could trail the returns on investments in smaller companies.
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.
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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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The opinions referenced above are those of the author as of April 2026. 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.
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The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500® Quality Index screens holdings based on three fundamental measures of quality: Profitability, earnings quality, and financial robustness — which helps to assess a company’s potential future profitability, as well as the financial risk each company faces.
The S&P 500® Value Index consists of stocks in the S&P 500® Index that exhibit strong value characteristics based on three measures: Book value-to-price, earnings-to-price, and sales-to-price.
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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.
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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.
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An investment in emerging market countries carries greater risks compared to more developed economies.
