April 2026
Global Asset Allocation Viewpoints
Welcome to our latest Asset Allocation Viewpoints - your monthly source for actionable insights on portfolio positioning from our Asset Allocation Committee and Multi-Asset team.
Outlook
- Continued conflict in the Middle East and energy supply shock threaten higher inflation and weaker growth, particularly in energy-import dependent economies.
- Despite elevated risk to growth and inflation, earnings momentum and economic growth still remain favorable, underpinned by accommodative fiscal policies across many regions.
- U.S. economic growth continues to show resilience driven by AI-driven capex, consumer spending and supportive fiscal policy; however, weakness in the labor market warrants monitoring.
- Markets outside the U.S. have been benefitting from firmer domestic demand and policy, where fiscal initiatives and improving corporate profitability are supportive. Sustained higher energy prices pose a risk.
- Key risks to global markets include escalating geopolitical tensions, a resurgence in inflation, reliance on AI-driven growth, further deterioration in labor markets, and a widening of liquidity concerns within private credit.
Themes Driving Positioning
War Premium
While the recent truce has temporarily brought relief to energy prices, the conflict in Iran remains unresolved with the parties still far apart on demands, raising concerns of continued uncertainty with further escalation not off the table. While energy importing countries remain the most vulnerable, the U.S. is not immune to the impacts, despite its energy independence. Higher global energy prices still filter into domestic costs, from fuel to transportation and beyond. And while the energy impacts could be fleeting with a durable end to the conflict, there are longer-term costs to be paid as seen in the recently proposed nearly 50% year-over-year increase of the 2027 U.S. defense budget ask, with a large portion to fund the conflict in Iran. This comes on the back of increased fiscal spending related to the One Big Beautiful Bill, estimated to add nearly 4 trillion USD in debt, which had already raised concerns over U.S. spending and inflation. While the timetable remains uncertain with the conflict, the combination of energy supply constraints and higher debt levels is bringing inflation concerns back to the forefront, having us lean into inflation hedges.
Crude Awakening1
Actual outcomes may differ materially from estimates. Estimates are subject to change.
Data as of 31 March 2026 unless otherwise noted.
1 Source: Bloomberg Finance L.P. Please see additional disclosures for more information.
The Stalwart
In the face of heightened geopolitical tensions in the Middle East, it has been surprising to see the relative resilience of most equity markets across the globe. Some suggest it reflects an optimistic view that the U.S.-Israel war with Iran will be short-lived. But as the conflict drags on and the stakes rise, it is becoming a more uncertain bet. Where we are finding more certainty is in earnings resilience, continuing to prove a stalwart amid heightened geopolitical risk over recent years, with this year’s earnings expectations accelerating from already strong levels supported by fiscal spending, capex, tax incentives and AI-related broadening. Now with the earnings season about to kick off, investors will be eager to hear if the current risks are beginning to weigh on outlooks. But at least for now, earnings momentum seems to be helping underpin the market and supporting our view that broadening can continue, provided the conflict does not materially worsen.
Keeping Hopes Alive2
Actual outcomes may differ materially from estimates. Estimates are subject to change.
Data as of 31 March 2026 unless otherwise noted.
2 Sources: Factset and S&P. Quarterly figures represent year-over-year earnings comparisons.
Asset Class Positioning
These views are informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.
Asset Classes
- We remain neutral on equities reflecting a balanced view with a supportive earnings backdrop and fiscal support against expensive valuations and ongoing tensions in the Middle East.
- We remain overweight small-caps given reasonable valuations, coupled with a supportive environment reflected in constructive earnings outlook, falling interest rates, and tailwinds from deregulation.
- We increased our overweight to short-term TIPS as a hedge against inflationary pressure, especially as the duration of the conflict in the Middle East and its impact on energy prices remains uncertain.
- We also moderated our underweight to long-term U.S. Treasuries to manage duration but remain concerned about upward pressure on interest rates given fiscal funding and inflation concerns.
- Though we still find cash yield levels reasonably attractive, we maintain a neutral position given cash yields are slightly below short-term bond yields.
Equities
Regional Views
Valuations remain stretched as hyperscaler capex pressures sentiment, though AI demand supports earnings. If energy prices remain elevated, inflation and policy risks could rise.
Fiscal support and improving growth aid cyclicals and financials, though if energy prices stay elevated, LNG supply risks could weigh on growth.
Valuations remain attractive and cyclical improvement is emerging, though fiscal constraints persist. If energy prices rise further, stagflation risks increase.
Improving global growth and fiscal support aid equities, though if energy costs remain elevated, import pressures and tighter policy could weigh on momentum.
Stronger energy prices support earnings, though if sustained, inflation risks and policy uncertainty could limit upside.
Attractive valuations and resource demand support equities, though if energy prices remain elevated, regional demand risks and policy constraints may weigh.
Global growth and stable currencies support equities, though if energy prices remain elevated, inflation and external pressures could increase.
Policy support and improving activity aid sentiment. Anti-involution efforts bode well for profit growth over the medium term. However, rising energy costs and structural housing market weakness will be headwinds.
Style & Capitalization Views
Mega-cap tech facing a more challenging period due to increased competition and capital intensity. However, underlying fundamentals remain strong.
Economic growth outlook remains supported by fiscal policy, re-shoring and capex. However, prospect for Fed cuts has weakened.
Growth stocks’ valuations are relatively expensive, while fundamentals remain somewhat underwhelming, and rising energy costs could be a headwind.
Strong fiscal outlook and normalized interest rate environment likely to drive further earnings growth, particularly in financials. However, energy costs could weigh on growth.
Scrutiny over rising capex coinciding with mounting competitive risks. However, fundamentals remain strong especially among AI infrastructure spending beneficiaries.
Mid-cap companies generally have lower leverage with potential for higher quality earnings growth relative to small-caps, but could offer less upside in the cyclical upswing.
Small-cap earnings improving due to deregulation, fiscal stimulus and broadening AI benefits. Upswing in manufacturing activity is also supportive.
Rising global fiscal stimulus, particularly in Europe and Japan offer support. However, restricted energy supply could weigh on business and consumer sentiment.
Monetary and fiscal policies along with a weaker dollar are beginning to provide tailwinds for cyclical areas with still very attractive valuations.
Mitigates risks from rising inflation pertaining to higher energy prices, and benefits from AI build-out demand. Precious metals have been subject to momentum swings.
Bonds
Regional & Sector Views
Resilient growth and rising inflation expectations placing upward pressure on rates. Credit fundamentals still supportive, with spreads expensive relative to history.
Attractive yield levels, however higher vulnerabilities to energy price shocks could lead to hawkish central bank responses.
Concerns around rising inflation expectations and fiscal deficits could keep upward pressure on long-end yields, with limited recession risk.
Inflation risk remains elevated due to staggered effects from tariffs, energy price shocks, as well as ongoing geopolitical conflicts.
Tight spreads may limit further potential upside, but sector continues to offer a healthy yield, measured default expectations and a low duration profile.
Favorable valuations and attractive yields provide support, however, software sector challenges and prospects for further Fed rate cuts later in 2026 present potential headwinds.
Attractive yields, room for spread compression and improving fundamentals, though geopolitical uncertainty could weigh on sentiment.
Compelling yields combined with expectations for a weaker U.S. dollar and lower rate volatility point to a favorable outlook.
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ADDITIONAL DISCLOSURES
1 Real Assets allocation is representative as a percentage of the overall equity allocation.
Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2026 FactSet. All Rights Reserved.
These are subject to change without further notice. Figures may not total due to rounding.
Neutral equity portfolio weights are representative of a U.S.-biased portfolio with a 70% U.S. and 30% international allocation; includes allocation to real assets equities. Core fixed income allocation is representative of a U.S.-biased portfolio with 55% allocation to U.S. investment grade.
S&P, Bloomberg Finance L.P. and FactSet do not accept any liability for any errors or omissions in the indexes or data, and hereby expressly disclaim all warranties of originality, accuracy, completeness, timeliness, merchantability, and fitness for a particular purpose. No party may rely on any indexes or data contained in this communication. Visit www.troweprice.com/marketdata for additional legal notices & disclaimers.
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. 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 guarantee or a reliable indicator of future results.
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 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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USA: T. Rowe Price Investment Services, Inc., and T. Rowe Price Associates, Inc.
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