Outlook Trade Wars Multi-Asset Blog

Multi-Asset Income Midyear Outlook: Income and Resilience Among the Bumps

Jul 10, 2025
4 min read
A rough but intact cobblestone street suggests that passage is possible, but very bumpy along the way.
Karen Watkin, CFA| Portfolio Manager—Multi-Asset Solutions
Fahd Malik| Portfolio Manager—Income Strategies
Edward Williams| Investment Strategist—Multi-Asset Solutions

Compelling bond yields and diverging equity returns offer building blocks for effective strategies.

We expected 2025 to unfold in two halves, starting with a supportive macro backdrop carried over from 2024. We also braced for elevated uncertainty in the second half of the year, believing tariffs would eventually take hold.

Instead of a smooth start, markets whipsawed in April when US tariff policy came sooner—and more extremely—than expected. Meanwhile, more pro-growth fiscal policy and expectations for rate cuts were pushed back to later in the year.

As we look to the second half of 2025, key macroeconomic drivers will likely include the direction of US fiscal and trade policy, the Federal Reserve’s monetary-policy stance and timing of potential rate cuts, and ongoing geopolitical and other related uncertainties.

Recession remains a tail risk. However, we believe its probability is relatively low and our base case is for a downshift to moderate economic growth, depending on how the global trade situation unfolds. We think multi-asset income investing is well suited for this environment, not only for yield potential but for resilience against a more uncertain backdrop. 

Stay “Close to Home” Given a Volatile Backdrop

Policy shifts have driven extreme bouts of market volatility in the first half of the year, particularly among US markets. It has been a bumpy ride for US Treasuries and the dollar in particular, while US stocks experienced their largest intraday moves since the global financial crisis of 2008 (Display). In this environment, we think it’s best to trust diversification that aligns with strategic allocations rather than overly tactical market timing.

Extreme Equity Market Volatility in Early 2025
The largest intraday move in April of 2025 was 10.8%, very near the 11.5% move in 2008.

Current analysis and past performance do not guarantee future results.
As of July 7, 2025
Source: Bloomberg, S&P and AllianceBernstein (AB)

Credit Where Credit is Due

After widening in the weeks around tariff announcements, credit spreads are now closer to their historical lows—reflecting the relatively benign macroeconomic backdrop. Credit has been remarkably resilient so far this year, more so than equities, and has been an important source of both income and diversification for multi-asset strategies.

Spreads (or valuations) may look expensive, but we believe that it’s more important to focus on yield levels. In fact, yield-to-worst has been a better predictor of return over the next three-to-five years than spread, even in the most challenging bond markets. And today, yields across credit are attractively high. We currently prefer higher-quality issuers, such as BB-rated, over lower-rated bonds to help manage tail risk. 

Positioning for a Steeper Yield Curve

We continue to view duration, or sensitivity to changes in interest rates, as an important diversification lever within a multi-asset income strategy. We expect US inflation to peak in the third quarter due to earlier tariff pressures, but with labor and wage trends cooling, the Fed should have room to resume rate cuts by year-end.

In the meantime, interest rates are still trying to find balance between easing policies on one side and rising yields among longer maturities on the other. This had caused a steady steepening of the yield curve. As a result, we think it’s prudent to lean toward short-to-intermediate bond maturities, where the risk-reward trade-off between yields and interest-rate risk is more attractive.

Casting a Wider Net for Equity Opportunities

From our perspective, markets are probably past the worst of the trade war turmoil, and tariff levels will likely settle just above where they began the year. We’re not out of the woods, but with a little more policy clarity than a few months ago, businesses are better able to lay out plans. Labor markets, manufacturing and services output, and corporate earnings have also shown resilience.

We continue to buy into the case for US exceptionalism, believing that the country’s unique qualities still support compelling and diverse investment opportunities versus other countries. But we also see the many benefits of global diversification among stocks and bonds.

Despite their volatile patch in April, global stock markets touched record highs by midyear. Returns have continued to broaden beyond a concentrated handful of US-technology highfliers to companies across sectors, regions (Display, left) and factors, such as growth, value and high-dividend payers (Display, right). This reinforces why we believe a broad mix of equities makes for effective multi-asset income strategies.

Dispersion in Equity Returns Has Increased…
Since 2024, returns for global stock markets have followed separate paths, as has performance among styles.

Current analysis and past performance do not guarantee future results.
Displays track cumulative returns from December 31, 2024 through July 7, 2025
Left display: US represented by MSCI USA Index; global ex US represented by MSCI World ex US Index; Europe represented by MSCI Europe Index (in euros); emerging markets represented by MSCI Emerging Markets Index
Right display: Quality represented by MSCI World Quality Index; low volatility represented by MSCI World Minimum Volatility Index; high dividend represented by MSCI World High Dividend Yield Index; growth represented by MSCI World Growth Index; value represented by MSCI World Value  
As of July 7, 2025
Source: Bloomberg, MSCI and AB

US large-cap stocks, global dividend payers and select cyclical names seem attractive right now. To us, it’s a powerful combination that offers tech growth and innovation exposure, which has led in the US. It’s complemented by value and income potential from European companies (Display), especially banks, which should benefit as monetary policy normalizes across more regions. The broader exposure also helps balance equity risk among different types of growth drivers, from reinvestment and share buybacks to dividends and pricing power.

Growth-Oriented Sectors Have Led in the US, While Value Sectors Led in Europe
Growth equities continue to dominate over value stocks in US markets, but Europe has favored value names since mid-2023.

Current analysis and past performance do not guarantee future results.
Display tracks cumulative returns from June 1, 2020 to July 7, 2025.
US growth represented by MSCI USA Growth Index; US value represented by MSCI USA Value Index; Europe growth represented by MSCI Europe Growth Index; Europe value represented by MSCI Europe Value Index
As of July 7, 2025
Source: Bloomberg, MSCI and AB

Multi-Asset Income and the Big Picture

We expect slower economic growth in the second half, but the degree depends on the evolving tariff situation. Other key macroeconomic drivers will include the timing of additional rate cuts as well as geopolitical and election-related uncertainties. Nonetheless, pro-growth fiscal policy, including the One Big Beautiful Bill Act’s sweeping tax cuts, should help offset some of that drag, which we think makes a recession less likely.

By fanning out across markets and factors, multi-asset income strategies have tended to navigate uncertainty effectively. Since environments can change quickly, investors still need to stay flexible. But from our perspective, a multi-asset income strategy is well-equipped to respond, offering resilience and attractive risk-adjusted return potential.

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, and are subject to change over time.

About the Authors

Karen Watkin is a Senior Vice President and Portfolio Manager for the Multi-Asset Solutions business in EMEA. Along with being Portfolio Manager for the All Market Income Portfolio, she is responsible for the development and management of multi-asset portfolios for a range of clients. From 2008 to 2011, Watkin was portfolio manager for the Index Strategies Group, responsible for the development and management of AB’s custom index strategies for institutional clients in EMEA. She joined the firm in 2003, after spending three years as a management consultant in the Capital Markets Group at Accenture. Watkin holds a BA in economics with European study from the University of Exeter and is a CFA charterholder. Location: London

Fahd Malik is a Senior Vice President and Portfolio Manager on the Fixed Income team, responsible for Income Strategies. His focus is on creating portfolios that utilize a multi-sector approach to generate efficient income. Prior to taking on this role, Malik served as a portfolio manager for AB’s Absolute Return fund. He joined the firm in 2006 and has extensive experience in systematic, market-neutral, risk-mitigating and derivative strategies. Malik holds a BS in electrical and computer engineering from The Cooper Union for the Advancement of Science and Art and an MS in mathematics in finance from the Courant Institute of Mathematical Sciences at New York University. Location: New York

Edward Williams is a Vice President and Investment Strategist within the Multi-Asset Solutions team, where he is responsible for the business development of AB’s Luxembourg income-thematic multi-asset strategies. Williams joined AB in 2020 when he was based in Hong Kong, supporting client activity across Asia, before relocating to London and into his current role. Prior to joining AB, Williams spent six years working at Fidelity International across a range of roles in Europe and Asia, including as an investment specialist, focusing on Fidelity’s risk-managed and outcome-orientated multi-asset solutions. He holds a BA in economics from the University of Reading. Location: London

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