Economics Volatility Equities Multi-Asset Chart

Is Your Multi-Asset Strategy Equipped for an Economic Surprise?

Sep 18, 2024
2 min read
Equity Strategy Returns Aren’t Uniform During the Business Cycle
Low-vol and high-div stocks outperformed growth in contractions and slowdowns, while small-caps shined in expansions.

Business cycles for the period from September 30, 1997 to August 31, 2024 as measured by OECD Composite Leading Indicators. US low-volatility stocks measured by the MSCI USA Minimum Volatility Index, US high-dividend stocks measured by MSCI USA High-Dividend Index and small-cap stocks
measured by the Russell 2000 Index.
As of August 31, 2024
Source: Bloomberg, FTSE Russell, MSCI, S&P and AllianceBernstein (AB)

With their unrivaled depth and breadth, US capital markets lend themselves well to multi-asset strategies. The US equity market is a key portfolio building block and has outpaced the stock markets of other developed markets over the past decade.

US growth stocks have led the world since 2023, buoyed by a handful of tech leaders and optimism over the potential game-changing nature of artificial intelligence. The Russell 1000 Growth Index returned 21.0% year to date through August 31, 2024, versus 12.0% and 9.6% for the MSCI EAFE and MSCI EM indices, respectively. On the back of strong earnings, we think these leaders should continue to thrive, but the US stock market offers more avenues for equity exposure.

We still expect the US to achieve a soft landing for 2024, but surprises happen. That’s why it helps to be diversified across equity segments more likely to thrive in certain conditions.

Take defensive stocks as an example: low-volatility and high-dividend companies have historically fared better than the broad US equity market during challenging business climates (Display). We think this makes them essential tools to manage downside risks should conditions turn south and growth stocks start to retreat. Conversely, US small-cap equities have outperformed during expansions, presenting a potential growth outlet if the economy surprises to the upside. 

From a big-picture view, current signals point to a slower-growth US economy ahead, but the environment can change on a dime. Whichever scenario emerges, we believe active multi-asset investors equipped with a mix of defensive and growth equity exposures are better positioned to weather economic surprises. 

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein.

The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.