September 2020 / INVESTMENT INSIGHTS
Global Asset Allocation: September Insights
Discover the latest global market themes
As of August 31, 2020
After more than a decade of below‑target inflation in the U.S., some investors are speculating that inflation may finally rise due to the magnitude of monetary stimulus coinciding with fiscal stimulus supporting the economic recovery from the coronavirus‑induced recession. Historically, inflation and money supply have been highly correlated—with increased money supply leading to more money chasing fewer goods—ultimately leading to higher prices. However, despite increased stimulus following the global financial crisis (GFC), over the past 10 years, inflation in consumer prices has remained muted, while only asset prices have increased. An uptick in inflation could provide a long‑awaited boost to cyclically oriented companies at the expense of highly valued growth stocks, especially highflying tech stocks that have led the stock market. The Fed’s recent policy change emphasising “average” inflation of 2% suggests lower rates for longer and a willingness to overshoot on inflation. Could a return of inflation be the catalyst needed to get a sustained rotation from growth to value stocks?
A Trillion Here, a Trillion There
Democrats in Congress and the Trump administration remain at a stalemate over additional fiscal support for American workers after earlier stimulus measures expired in July. Consumer spending received a boost in recent months from the nearly USD 2.8 trillion in fiscal measures passed in March, but it may begin to falter if additional support isn’t agreed upon soon. In early August, the president signed executive orders to extend enhanced employment benefits and halt evictions as the sides had made little progress. About a trillion dollars still separates the two sides, and aid to state and local governments continues to be the biggest sticking point. While the consequences of not acting quickly could surely have a negative impact on the economy, further stimulus measures could cause U.S. public debt to reach USD 30 trillion next year, pushing the ratio of U.S. debt to gross domestic product to levels not seen since World War II. While there is no doubt that additional stimulus may be necessary to lift the economy out of the current crisis, Americans can only hope that Washington is getting the best bang for the trillions it is spending.
As many businesses and households continue to struggle amid the coronavirus pandemic, one surprising bright spot in the economy has been the U.S. housing market. Demographic trends, ultralow interest rates, tight supply, work‑from‑home capabilities, and urban flight have driven demand for existing and new home sales higher, leading to bidding wars and soaring home prices. A strong housing market could provide a boost for the economy as home purchases often lift other sectors through lending and spending on furniture, appliances, and renovations. The stock market has cheered the news, with the Home Builders Index up 120% since March lows. The irony is that while housing is surging, we’re in the midst of recovering from the deepest recession in U.S. history, with unemployment still at high levels. Is it possible that the coronavirus has created structural changes in the way homeownership is viewed going forward?
For a region-by-region overview, download the PDF.
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.