2022 Midyear Market Outlook

Transitioning to a New Paradigm

2022 has brought the market to a challenging inflection point, delaying investors' hopes for a return to normal. Discover how we're preparing for what's ahead.

Four Key Investment Themes

For years markets have experienced low volatility and ample liquidity. In 2022, that's changed. Inflation is now a central factor determining where markets might go from here.

Line chart showing five-year U.S. inflation expectations have been rising.
Line chart showing five-year U.S. inflation expectations have been rising.
Quote from Justin Thomson: In volatile markets, active management can be your friend.
Quote from Justin Thomson: Volatility can provide opportunity. And active management can be your friend.

A spike in bond yields punished equity valuations in the first half. The question now is whether an earnings slowdown will be the next shoe to drop.

U.S. Treasuries and other core bonds didn’t offer much diversification in the first half as equity correlations jumped. New flexible approaches to fixed income allocations may be needed.

Quote from Arif Husain: Over the medium term, I think yields will reach levels that will make clients happy with the income they’re getting from their bond portfolios.
Quote from Arif Husain: This is the most attractive point to buy bonds that we've seen in several years.
Line chart showing that Russia's invasion of Ukraine has impacted commodity performance.
Line chart showing that Russia's invasion of Ukraine has impacted commodity performance.

War in Ukraine and sanctions against Russia could continue pushing commodity prices higher but also could accelerate a shift to renewable energy.

Catch the most important takeaways from this year’s Midyear Market Outlook in under two minutes with Ritu Vohora.

Tactical Allocation Views

As of May 31, 2022

The tactical allocation views are prepared by the T. Rowe Price Multi-Asset Division and informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.

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Despite sell-off, stocks remain vulnerable to further weakness. Earnings expectations have held up reasonably well thus far, but could face considerable pressure from rising input costs and slowing economic growth.

Tighter global central bank policies and still elevated inflation could keep upward pressure on yields, although U.S. rates appear to have peaked for now. Credit spreads look more attractive following risk-off sentiment.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. 

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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of June 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Risks: International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. Small-cap stocks have generally been more volatile in price than the large-cap stocks. The value approach to investing carries the risk that the market will not recognize a security's intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. Sustainable investing may not succeed in generating a positive environmental and/or social impact.

Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall. Investments in high yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.  In periods of no or low inflation, other types of bonds, such as US Treasury bonds, may perform better than Treasury inflation protected securities.  Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk, such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. Diversification cannot assure a profit or protect against loss in a declining market.  

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. Actual future outcomes may differ materially from any estimates and forward-looking statements made. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc. 

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