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Investing During Transition
2025 Global Market Outlook
The world is transitioning at a pace and scale rarely seen before. Radical innovations in AI and healthcare. Elevated geopolitical tensions, including the raised possibility of tariffs following the US election. A potential slowdown in global growth. Times like these demand actionable insights and the skill of active management. Here’s what to know to navigate the shifts and opportunities ahead.
Global Economy
Mapping the path from slowdown to recovery
There is strong potential for a slowdown in global growth in early 2025. But central banks are poised to respond with rapid rate cuts, paving the way for a fast recovery. We expect a shift from services to manufacturing—the result of a global push towards renewable energy and the rise of AI. These factors are, in part, fueling infrastructure spending.
Key takeaway
A recovery in the second half of the year will likely hasten the transition to manufacturing-led growth.
US Economy
US exceptionalism has not run out of steam
The US economy is set for another year of growth, bolstered by investments in AI. Fiscal policies and coordinated monetary easing support this outlook. Job creation will likely slow as companies have front-loaded hiring, but unemployment is expected to remain low. Improving productivity should also provide another boost to growth.
Key takeaway
Despite a slowing jobs market, supportive monetary policy and improving productivity should keep the US economy out of recession.
Global Equities
Value and small caps could power international equities
As we emerge from a period dominated by U.S. tech, international equities may offer breadth and room for growth. Diversifying into areas that have valuation support and robust fundamentals, such as value and small cap stocks, seems prudent. Japan, Korea, and the United Kingdom could also benefit from structural changes.
Key takeaway
We anticipate a broadening opportunity set that favors international markets, particularly value and small cap stocks.
International small‑cap and large‑cap valuations have converged
(Fig. 1) The traditional premium of small‑caps has virtually disappeared
January 30, 2009 through October 31, 2024.
Source: MSCI (see Additional Disclosures in the report). Analysis by T. Rowe Price.
P/E= Price-to-earnings. Past performance is not a reliable indicator of future results. Actual future results may differ materially from estimates.
Source: MSCI (see Additional Disclosures in the report). Analysis by T. Rowe Price.
P/E= Price-to-earnings. Past performance is not a reliable indicator of future results. Actual future results may differ materially from estimates.
US Equities
Rate cuts provide opportunities for US small caps and financials
Themes driving the bulk of U.S. equity returns in 2024 may unwind in 2025. Bottom line: We see a broadening opportunity set in equity markets. Small caps should benefit from further interest rate cuts and any signs of an improving economy. Underappreciated sectors like energy, financials, and industrials could also offer opportunities, signaling a stock-pickers' market.
Key takeaway
Trends that dominated U.S. equities in 2024 may fade in 2025, but this will likely expand the opportunity set.
U.S. equity valuations are close to historic highs in many sectors
(Fig. 2) Returns may underperform bonds in the medium term
Past performance is not a reliable indicator of future performance.
As of October 31, 2024.
Source: Standard & Poor’s, via FactSet (see Additional Disclosures in the report). Analysis by T. Rowe Price.
Time period range to determine the current relative valuation percentile as of October 31, 2024 is January 31, 1990 through October 31, 2024. Valuations are calculated monthly
As of October 31, 2024.
Source: Standard & Poor’s, via FactSet (see Additional Disclosures in the report). Analysis by T. Rowe Price.
Time period range to determine the current relative valuation percentile as of October 31, 2024 is January 31, 1990 through October 31, 2024. Valuations are calculated monthly
Fixed Income
Finding income in high yield bonds, bank loans, and emerging markets
Bond yields have been on a roller coaster ride as markets have tried to anticipate shifts in central bank policies. Given current market pricing, this implies upside risk to yields. Where to focus: Cash yields remain attractive, but longer duration fixed income is vulnerable. We believe high-yield bonds and bank loans are best positioned for yield, while emerging market bonds also present favorable income prospects.
Key takeaway
Noninvestment-grade sectors and emerging market bonds offer attractive yield opportunities even if government bond yields decrease.
Topics in Focus
Private Markets
Weaker growth, lower rates set to open up private markets
Evolving economic and market conditions could expand opportunities for private market investors. Private credit will cater to complex financing needs, while potential IPOs and increased M&A activity, driven by lower interest rates, may offer liquidity avenues for private equity investors.
Key takeaway
A more challenging economic environment and the Fed’s rate‑cutting cycle will open up opportunities for private market investors in 2025.
Healthcare
Radical innovations are driving a healthcare revolution
A wave of innovation is transforming the health care sector’s prospects. And not just in GLP-1s. Technological developments are leading breakthroughs in AI-led cancer screening and robotic surgery. Therapeutic breakthroughs could have major impacts. A return to lower rates and inventory normalization may also bring a timely boost for the sector.
Key takeaway
A new generation of treatments and technologies are paving the way for what could be a golden age in healthcare.
Artificial Intelligence
AI’s “easy money” era is over, but rich opportunities remain
The launch of ChatGPT ignited a surge in AI stocks. While the initial rapid growth phase may be over, AI remains a powerful productivity enhancer for the global economy. What does that mean for investors? Transitioning to AI’s next investment phase. Innovative “linchpin” companies—with strong fundamentals—offer strongest growth prospects, in our view.
Key takeaway
Investors seeking to navigate the next phase of the AI investment cycle should look for key tech firms that are innovating within growth markets.
Tactical allocation views
Get the T. Rowe Price Multi-Asset Division’s expert views on the relative attractiveness of asset classes and subclasses over the next six to 18 months.
Investment Solutions
T. Rowe Price Funds SICAV
Diversified Income Bond Fund
Actively managed and invests mainly in a diversified portfolio of debt securities of all types from issuers around the world, including emerging markets.
T. Rowe Price Funds SICAV
Global High Income Bond Fund
Actively managed and invests mainly in a diversified portfolio of high yield corporate debt securities from issuers around the world, including emerging markets. The Fund may invest up to 40% of its net asset value in emerging markets.
T. Rowe Price Funds SICAV
Global Focused Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of companies that have the potential for above average and sustainable rates of earnings growth. The companies may be anywhere in the world, including emerging markets.
T. Rowe Price Funds SICAV
Global Technology Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of technology development or utilisation companies, with a focus on leading global technology companies. The companies may be anywhere in the world, including emerging markets.
T. Rowe Price Funds SICAV
US All-Cap Opportunities Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares or related securities issued by companies in the United States of America.
T. Rowe Price Funds SICAV
US Smaller Companies Equity Fund
Actively managed and invests mainly in a widely diversified portfolio of shares from smaller capitalisation companies in the United States.
T. Rowe Price Funds SICAV
US Large Cap Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares from large capitalisation companies in the United States that have the potential for above-average and sustainable rates of earnings growth.
T. Rowe Price Funds SICAV
China Evolution Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of Chinese companies and may have significant exposure to smaller capitalisation companies.
Important Information
Where securities are mentioned, the specific securities identified and described are for informational purposes only and do not represent recommendations.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature , including fiduciary investment advice. 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.
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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.
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