May 2023

Global Asset Allocation Viewpoints

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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. 

Market Perspective

As of April 30, 2023

  • Slowing economic growth, lingering inflation and declining liquidity keep us cautious, while a still resilient labor market, solid consumer and corporate balance sheets and China reopening remain positives against otherwise negative sentiment.
  • Widening gap in monetary policy likely ahead as the Federal Reserve (Fed) is expected to pause after May, Bank of Canada on hold, while the European Central Bank and Bank of England remain hawkish. Meanwhile increased uncertainty around Bank of Japan persists under new leadership as they evaluate yield curve control policy.
  • Key risks to global markets include a sharp decline in growth, central bank missteps, persistent inflation, liquidity shock, and geopolitical tensions.

Portfolio Positioning

As of April 30, 2023

  • We maintain a cautious stance with an underweight to equities and bonds in favor of cash. Equities remain vulnerable to a slowing economy and weaker earnings backdrop, while central banks’ bias, albeit moderating, toward inflation fighting remains a potential headwind to bonds. Cash offers liquidity in an uncertain environment and still attractive yields.
  • Within equities, we remain overweight areas of the market that offer attractive valuation support including small/mid-cap stocks and emerging markets.
  • Within fixed income, we added to unhedged developed ex-US bonds as well as emerging market local currency bonds given views for a weaker U.S. dollar against narrowing growth and interest rate differentials as the Fed nears its anticipated terminal rate.

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Market Themes

As of April 30, 2023

Looking for Direction

While the market narrative is that a recession is inevitable, especially in the U.S., economic data continues to be mixed with seemingly sufficient evidence to support both bulls and bears’ outlook for the markets. Bulls continue to lean on evidence of a still robust labor market, strong consumer and corporate balance sheets, a better-than-expected earnings season, and signs of moderating inflation supporting a pause in central banks’ tightening. Meanwhile bears cite lagging impacts of central bank tightening, regional banking turmoil, contractionary manufacturing data, still high inflation, and a deeply inverted yield curve as top reasons why a deeper recession is coming. While we agree that the data remains mixed, the trend will likely continue to be negative into the back half of the year with employment softening and economic growth contracting. However, at this point it is difficult to gauge the potential depth and duration of the contraction, leaving us broadly cautious as we keep an eye on data, looking for more direction.

Economic Growth Forecasts Indicate a Recession Coming1

As of 31 March 2023

As of 31 March 2023

Data provided is for illustrative and informational purposes only. There is no guarantee that any forecasts made will come to pass. Actual results may vary.
Source: Bloomberg L.P.
1 Real GDP is represented by the GDP US Chained Index (QoQ).

Fissures Forming

Despite slowing economic growth amid an aggressive tightening campaign by the Fed, the labor market has remained resilient, especially with the unemployment rate anchored near 3.5%, but some fissures appear to be forming. Looking below the surface, peaking wage growth, declining job openings, and mixed continuing claims data are telling us that the employment picture may be finally softening. Headlines of recent layoffs also indicate labor market weakness although most of them have been concentrated in the higher-earning technology and financial sectors, while the lower income and service-related jobs market remains tight. This is an unusual trend and a result of the lag in reopening from COVID, that has created a lack of supply in labor as services demand has returned. Despite this still positive undercurrent, we are expecting further softening in the labor market evidenced in our research of staffing companies seeing significant weakness in demand, usually an early sign of pending deterioration. This should be a welcome sign for the Fed as a softening labor market will surely ease wage pressures, and ultimately help on the disinflation front.

Wage Growth Peaking with Still Low Unemployment2

As of 31 March 2023

As of 31 March 2023

Data provided is for illustrative and informational purposes only. There is no guarantee that any forecasts made will come to pass. Actual results may vary.
Source: Bloomberg L.P.
2 Employment Cost Index is represented by the Bureau of Labor Statistics Employment Cost Civilian Workers Index (YoY%). Unemployment Rate is represented by the US Uemployment Rate Total in Labor Force Seasonally Adjusted.

Regional Backdrop

As of April 30, 2023

Regional Backdrop

Click each region below for more details

  • Consumer spending remains strong
  • Labor market has been resilient
  • Services sector remains robust
  • Yields may have peaked


  • Banking sector concerns impact on credit availability
  • Inflation more persistent than expected
  • Labor supply remains scarce
  • Debt ceiling stand-off creates additional uncertainty


  • Monetary tightening may have peaked
  • Equity market valuations are attractive
  • Wage growth has moderated


  • Housing market continues to weaken rapidly
  • Consumer savings balances are fading sharply
  • Commodity price weakness may weigh on corporate profits

  • Lower energy costs
  • Fiscal spending is rising
  • Equity valuations remain attractive
  • Manufacturing PMIs are improving


  • Inflation remains elevated, particularly core inflation
  • Monetary policy remains restrictive
  • Geopolitical uncertainty is heightened


  • Pressure from gas and oil prices has decreased
  • Manufacturing PMIs are improving
  • Inflation expectations have decreased


  • Inflation remains elevated
  • Fiscal consolidation and tighter financial conditions may weigh
  • House price declines in 2023 appear likely
  • Brexit adjustments continue to weigh on the economy


  • Equity valuations remain attractive
  • Uptick in inflation, particularly increase in wages
  • Inflows to the stock market from foreign investors
  • Corporate governance continues to gradually improve


  • Earnings expectations could be revised lower
  • Monetary policy normalization may surprise the market
  • A stronger yen may weigh on the export sector

  • Uptick in immigration has kept wage pressures stable
  • Home prices are showing signs of bottoming
  • RBA is likely to lean on the dovish side


  • Consumer spending is at risk with mortgage rates being reset
  • Corporate margins are deteriorating
  • Equity valuations do not reflect recession concerns


  • China re-opening has proven to be faster than expected
  • Economic data is surprising to the upside
  • Equity valuations are attractive relative to the US
  • Chinese regulatory policy more supportive


  • Global trade could weaken with tighter monetary conditions
  • Geopolitical risks remain elevated
  • Credit formation in China remains weak
  • Brazilian politics are becoming less business friendly

Asset Allocation Positioning

As of April 30, 2023

These views are informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.

Positioning Key

Asset Classes

Outlook remains uncertain due to lagged impacts of Fed tightening amid a slowing economy. However, resilient labor market and positive developments in Europe and China are supportive. Stocks remain vulnerable due to elevated valuations.

Rate volatility could remain elevated as central banks continue to balance persistent inflation and growth concerns. Credit sectors continue to offer attractive valuations with broadly supportive fundamentals.

Cash currently offers attractive yields, a shorter duration profile if rates drift higher, and provides liquidity should market opportunities arise.



Despite a resilient economy, the outlook remains clouded by lagged impacts of Fed tightening, manufacturing sector weakness, and early signs of labor market softness. Elevated valuations make U.S. equities unappealing given this backdrop.

Valuations are attractive on a relative basis and local currencies have room to appreciate. Reopening in China may continue to provide support, but global monetary policy will remain a headwind.

Valuations and currencies are attractive and central bank tightening may have peaked. Meanwhile, the medium-term outlook in China has improved with reopening and easing regulatory environment.

Style & Market Capitalization

Relative valuations for value stocks remain attractive, however a tilt towards higher quality businesses is important given the weakening macro backdrop and banking concerns.

Value stocks offer attractive valuations. Cyclical and geopolitical risks remain a concern, but have eased recently due to the improved outlook for China and Europe.

Small-caps offer attractive upside potential having already priced in a dire economic scenario with historically attractive relative valuations. Higher-quality bias and selective exposure to regional banks is warranted.

Small-caps offer attractive valuations and could benefit from any further U.S. dollar weakening. However, caution is warranted due to a potential flight to quality that could favor large-caps.


Commodities offer an attractive hedge if inflation remains elevated, however commodity prices may ultimately face pressure due to global economic concerns, while REITs face pressure from higher rates and commercial real estate weakness.


Elevated inflation and recent economic data could keep central banks in tightening mode in the near-term, while IG corporates offer attractive valuations and supportive fundamentals.

Developed ex-US yields could remain volatile as global central banks balance elevated inflation versus slower growth.

While yield volatility could persist near-term, an uncertain macro backdrop and potentially peaking rates could provide a tailwind for longer duration bonds.

Although inflation is proving to be more resilient than expected, it is priced into current breakeven levels, limiting further upside for the sector.

Credit fundamentals remain supportive, however default rates may rise from historically low levels given a challenging economic backdrop. Higher yields offer attractive income and a buffer should credit spreads widen.

Valuations remain attractive, but as the Fed moderates its tightening path the benefits of loans’ rate resetting feature and lower duration profile become less compelling.

Yields still attractive as China reopening continues to support EM growth and boosts sentiment. Potentially peaking central bank tightening and moderating inflation should also be supportive.

EM currencies and local yields remain at attractive levels but reflective of cautious sentiment. Fed slowing its pace of interest rate tightening could be supportive of EM currencies relative to a softening U.S. dollar.

*For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.

The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.

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Portfolio Implementation

As of April 30, 2023


Tactical Allocation Weights


Fixed Income

Tactical Allocation Weights


1 U.S. small-cap includes both small- and mid-cap allocations.

Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2023 FactSet. All Rights Reserved.
These are subject to change without further notice. Figures may not total due to rounding.
Neutral equity portfolio weights 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 representative of U.S.-biased portfolio with 55% allocation to U.S. investment grade.

Important Information

Any 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, and 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 a 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.

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