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Investment Insights

May 2020

Global Asset Allocation Viewpoints

T. Rowe Price

Portfolio Positioning

As of 30 April 2020

Paring Back

  • We moderated our equity overweight, taking the opportunity to capitalize on gains as the market rebounded into a bull market at an unprecedented pace off lows reached in late March.
  • Within our regional equity positioning we moved to neutral U.S. equities from an underweight. The U.S. market’s profile is more defensive—with heavier weights to technology and communications—and its economy may be better positioned to support a rebound in growth buoyed by unprecedented fiscal and monetary stimulus.
  • Within the U.S., we moderated our overweight to small-cap stocks. Despite still attractive relative valuations, smaller companies are likely to face near-term headwinds given their broadly higher exposure to consumer spending and more limited balance sheet flexibility relative to larger companies.
  • Outside the U.S., we moderated our exposure to more cyclically exposed value stocks as economic growth is likely to remain challenged. We also pared emerging markets exposure as many countries, other than better-resourced economies like China, face challenges containing the coronavirus outbreak and have limited tools to support growth.

Market Themes

As of 30 April 2020

Price Discovery

Trying to put a price on the stock market in the current environment is extremely challenging. The velocity of the market decline and subsequent recovery are unparalleled, with day-to-day price swings that can look more like returns for a full year. Similar to the “P”, in price-to-earnings measures, the “E” is challenging to pin down as estimating earnings is hampered by uncertainty around the duration of the global shutdown and the post-crisis environment. First quarter earnings reports are starting to shed some light, and the broad picture shows a steep decline with S&P 500 earnings down nearly 15%. In this environment, there have been winners and losers, with technology and communications sectors resilient, while other more cyclical sectors have been hard hit, including energy and industrials. Compared with previous crises, today’s crisis is not normal and the speed of the recovery may not be normal either. What may be very different, though, are the winners and losers, making it ever more important to watch what you’re paying for “normalized” earnings for companies that will likely be facing an abnormal world.

S&P 500: Info Tech vs. Energy
As of 30 April 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co., Bloomberg Finance L.P., Standard & Poor’s. Please see additional disclosures on the final page.

Fed Extinguishing Liquidity Risk, Solvency Smolders

Global central bankers have unleashed unprecedented monetary policies to help offset contracting growth and ease widespread liquidity strains. In the U.S., the Federal Reserve has launched several lending and asset purchase programs that have provided much needed stability within the commercial paper, U.S. Treasury debt, corporate bond, municipal bond, mortgage-backed, and money market sectors. The most direct support will come through the launch of the Main Street Lending Program under which the Fed is directly providing loans through its network of banks to small and mid-size businesses that are too large to participate in the Treasury’s Paycheck Protection Program (PPP). However, these loans will need to be paid back, whereas the PPP lending converts to grants if used directly to fund employee wages. While these actions by the Fed provide much needed liquidity, eventually these businesses must be able to stand on their own. Given the uncertain future for many industries post-crisis, markets are likely to shift their focus to solvency risk, where some companies’ profitability may not be able to sustain their debt obligations.

U.S. High Yield Default Rate
As of 30 April 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co., Bloomberg Finance L.P., Standard & Poor’s. Please see additional disclosures on the final page.

Looking Through

First quarter gross domestic product (GDP) growth rates around the world are showing levels of contraction not seen since 2008, with the U.S. slipping -1.2% quarter over quarter (-4.8% on an annualized basis) and the eurozone down -3.3%. The steep declines were largely due to the extensive lockdown measures implemented worldwide, which hampered the previously resilient consumer and severely impacted services industries such as entertainment, health care, and food. As bad as these first quarter numbers were, the data only reflected economic closures that started around the second week of March, indicating that next quarter’s data will be much worse, with nearly the entire economy impacted by lockdowns in April and significant portions of May. Despite the alarming economic growth, unemployment, and manufacturing data, global stock markets have shrugged off the weakness as temporary in hopes that recovery will not be too far off once economies reopen. With a headline second quarter GDP number in the U.S. that could be as low as -40%, we’ll see if markets will continue to look through the negative data or begin to react in a different direction.

U.S. Real GDP Growth (Annualized)
As of 31 March 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co., Bloomberg Finance L.P., Standard & Poor’s. Please see additional disclosures on the final page.

Regional Backdrop

As of 30 April 2020

United States

  • Unprecedented levels of monetary and fiscal support
  • Healthy consumer balance sheets prior to the crisis
  • Pause in trade war escalation
  • Health care infrastructure is stronger than most regions
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
  • Size of country and freedom of movement means there is higher potential for continued outbreaks
  • Inconsistent policies from state to state
  • Elevated corporate leverage going into the crisis
  • Service-oriented economy means higher economic impact from social distancing
  • Margins under pressure going into the crisis
  • Elevated government debt levels


  • Long-awaited fiscal stimulus is coming
  • Monetary policy remains very accommodative
  • Inexpensive valuations have become even more inexpensive as Europe has borne the brunt of the sell-off
  • Weak economic growth going into crisis
  • Limited scope for ECB to stimulate further
  • De-centralized government structure means fiscal response is delayed
  • Banking sector was weak going into the crisis
  • Political tensions heightened by the crisis

Developed Asia/Pacific

  • Outbreaks in this region have thus far been milder than in the rest of the world
  • Strong and aggressive fiscal stimulus
  • Japanese companies generally hold high cash levels, meaning they have more cushion for weakness
  • Highly sensitive to global industrial production and trade trends
  • Australia holds high exposure to natural resource prices, which have weakened considerably

Emerging Markets

  • Virus outbreak in China appears to be contained
  • Policy response from China has been significant
  • Younger population likely to be less affected by virus
  • Dovish Fed has given central banks flexibility to ease
  • Easing trade tensions
  • Equity valuations attractive relative to developed markets
  • Weak health care infrastructure in many regions
  • Limited ability to enact fiscal stimulus (excluding China)
  • Highly sensitive to global industrial production and trade trends
  • Commodity prices under pressure
  • Instability in several key markets could weigh on sentiment
  • Potential for elevated currency volatility

Asset Allocation Committee Positioning

As of 30 April 2020

Portfolio Implementation

As of 30 April 2020

Source: T. Rowe Price.
Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
These are subject to change without further notice.
Please see “Additional Disclosures” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2020, Bloomberg Index Services Ltd. Used with permission.

Additional Disclosures

Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.

Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “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. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

Used with permission of Bloomberg Finance L.P.

Copyright © 2020, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact.

Key risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and, therefore, involve higher risks.
Foreign investing risk – investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates; differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small- and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

Important Information

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

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