US Economy Faces Potential Hard Landing as Tariff Volatility Persists

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Richard Weiss, the Chief Investment Officer for American Century’s Multi-Asset Strategies, highlighted the weakening position of US equities, exacerbated by tariff tensions. Initial forecasts, made prior to tariff announcements, may require revisions to account for these extensive impacts as the year progresses.

Weiss noted that while cash returns are expected to outpace inflation, forecasts for longer bonds remain buoyant. The outlook for US equities, however, has been tempered, particularly with a forecasted decline in P/E multiples for large-cap stocks.

A decline in return estimates for US large-cap equities to 6.50% from last year's 7.25% indicates decreasing valuations. Conversely, projections for small-cap and non-US developed market equities appear more stable, promising superior returns relative to large and mid-sized US counterparts. Yet, US growth stocks could outshine others in terms of earnings growth.

The report also reveals that certain fixed-income categories remain largely unchanged from prior year predictions, though a slight drop in high yield and convertible bond returns is anticipated.

American Century's strategic plan incorporates six scenarios, ranging from soft to hard landings, technological impacts, policy shocks, climate change implications, to shifting demographics characterised by an aging population. These scenarios provide a framework for understanding potential market transformations over the next five years.

The expectation is for US large-cap growth stocks to undergo a correction in valuation multiples, although earnings are likely to stay robust. Meanwhile, small-cap stocks are slated to outpace large-cap value stocks in earnings without significant valuation shifts.

Weiss confirmed that despite the recent downturns in return expectations, these forecasts were prepared before the US imposed broad tariffs, impacting a wide array of imports. Such late developments have intensified concerns over possible economic stagnation or stagflation, as reflected in American Century’s detailed market scenarios.

Published:Wednesday, 30th Jul 2025
Author: Paige Estritori

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