January 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
- We maintain a balanced view across global risk assets and are neutral equity. Despite extended valuations, earnings trends and economic growth remain favorable, with the latter supported by fiscal and monetary policies across most regions.
- U.S. economic growth remains resilient fueled by AI-driven capital spending and supportive fiscal and monetary policies, although softening labor market warrants monitoring.
- Markets outside the U.S. supported by fiscal spending, notably in Europe and Japan, lower inflation and moderating trade risks.
- Key risks to global markets include narrowness of AI trends supporting earnings, economic growth and markets, sticky inflation, potential for quickening labor market declines, and ongoing geopolitical tensions.
Themes Driving Positioning
Four-Peat?
The U.S. equity bull market is now entering its fourth year, having put up double-digit returns in each of the past three, leaving investors wondering whether it can keep the streak alive. While multi-year stretches of positive equity market returns are common, delivering double-digit returns four years in row are few and far between. The naysayers point to elevated valuations, narrowness of the market, uncertainty around Fed policy amid leadership change, a softening labor market, and U.S. mid-term election risk. Yet history has shown bull markets don’t die of old age alone, and while valuations are elevated, they’re below prior cycle extremes. Bulls can also point to still robust earnings expectations, a broadening of AI beneficiaries, fiscal support, increased capex spending, deregulation, rising M&A activity, and easing trade tensions. With the risks reasonably balanced and momentum still intact, the path of least resistance for the equity market may continue to be higher for now—the question is can it reach double digits for the four-peat?
Shooting for Double Digits1
Past performance is not a guarantee or a reliable indicator of future results
Data as of 31 December 2025 unless otherwise noted.
1 Sources: Bloomberg L.P. and S&P. Please see additional disclosures for more information. The dotted line represents the double-digit threshold (10%).
That Was Then, This is Now
The U.S. bond market delivered surprisingly strong performance last year, ending up more than 7%. U.S. investors with overseas bond exposure fared even better, gaining close to 9% thanks to a weaker U.S. dollar. While many investors had expected higher inflation, driven by tariffs and global fiscal spending plans to pressure bonds, yields ultimately ended the year lower. Fed easing in the latter part of the year in response to softer labor market data and easing inflation helped cement a winning year for bonds. Demand also contributed as investors finally moved from cash into short and intermediate parts of the yield curve. As we start this year, risks to the bond market appear tilted to the downside once again with upward pressure on rates from still above target inflation, strong growth supported by fiscal spending, and a flood of supply expected from sovereigns as well as corporations funding AI spending. The added uncertainty around monetary policy under a new Fed chair may also bring with it much higher volatility, leaving bond investors wishing they were back in 2025.
Moving Out2
Past performance is not a guarantee or a reliable indicator of future results
Data as of 31 December 2025 unless otherwise noted.
2 Source: EPFR Fund Flows and Allocation Data.
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 between decent fundamentals, including fiscal support and potential for deregulation against expensive valuations.
- We continued to move overweight small-caps given reasonable valuations and a supportive environment reflected in constructive earnings outlook, lower interest rates, and tailwinds from deregulation as well as M&A/IPOs.
- We maintain an underweight to bonds as inflation and funding requirements associated with U.S. fiscal stimulus and continued deficits could keep upward pressure on rates, particularly at the long end.
- We have a short duration position reflected in an underweight to U.S. long-term Treasuries, underweight to Core bonds, and overweight to high yield.
- We continue to maintain an overweight position in cash, due to reasonable yields and limited duration risk.
- Sector offers liquidity to take advantage of opportunities amid market dislocations.
Equities
Regional Views
Valuations remain stretched; hyperscaler capex pressures sentiment, yet AIinfrastructure demand supports earnings breadth. Labor market weakness and persistent inflation remain concerns.
Valuations are reasonable and the economic outlook is improving due to German fiscal stimulus. Financials offers a particularly attractive sector.
Attractive valuations and steady earnings trends persist, but fiscal constraints, uneven inflation, and labor market weakness continue to weigh on sentiment.
Governance progress and steady policy backdrop aid sentiment, though valuations and tighter monetary policy could temper near-term upside.
Fundamentals are solid and economic outlook is strong, but upside could be limited with projected EPS growth and valuation near the top of historical ranges.
Economic and earnings growth remain modest, while monetary policy is unlikely to provide support over the near term.
Support from stable currencies, improving policy and strong AI-infrastructure demand supports EM equities—but weak global demand and inflationary concerns pose risks.
Government support and AI gains help stabilize sentiment, but labor weakness, property stress, and credit uncertainty persist.
Style & Capitalization Views
Expectations remain high for mega-cap tech as underlying fundamentals remain strong. However, extended valuations make risk/reward less attractive.
Economic growth outlook for 2026 supported by deregulation, fiscal policy, re-shoring and Fed cuts. However, thus far strength has been largely limited to AI infrastructure build-out.
Growth stocks’ valuations are less attractive than value. Growth stocks offer less sensitivity to improving global economic backdrop.
Improving monetary and fiscal outlook as well as a normalized interest rate environment should continue to drive further earnings growth. Valuations remain compelling.
Very strong and improving fundamentals, particularly within technology have justified valuations thus far. However, rising hyperscaler capex is coinciding with mounting competitive risks.
Mid-cap companies generally have lower leverage and greater potential for quality earnings growth relative to small-caps, but could offer less upside in the cyclical upswing.
Fed cuts, deregulation, fiscal stimulus and stronger M&A and IPO activity could lead to improving small-cap earnings and combined with favorable valuations make the case for higher quality small-cap companies.
Improving prospects for Europe and Japan, combined with a more stable outlook in China offer support. Potential for further U.S. dollar weakness also supportive.
Cyclical improvement and weaker dollar could provide tailwinds, particularly in developed markets, with still very attractive valuations.
Offers mitigation from rising inflation risks, benefits from a weaker dollar, increased energy demand from AI and stabilizing economic backdrop. Precious metals are also benefitting from rising geopolitical uncertainty.
Bonds
Regional & Sector Views
Stable growth, sticky inflation and heavy issuance give curve a steepening bias. Credit fundamentals still supportive, with spreads rich relative to history.
Attractive alternative to U.S. yields with less steepening pressure on long end of the curve given stable growth and limited inflationary pressures.
Concerns around sticky inflation and fiscal deficits could keep upward pressure on long-end yields.
Risks of stickier inflation remain due to staggered effects from tariffs and more stability to the economic growth backdrop.
Despite tight spreads, sector continues to offer a healthy yield, measured default expectations, and a low duration profile.
Favorable valuations and attractive yields provide support, however, potential for further monetary policy easing pose a challenge for the asset class.
Attractive yields and many central banks have room to cut with lower inflation, although potential for higher long-end U.S. interest rates pose a headwind.
U.S. dollar weakness has been a tailwind and is expected to continue, however, longer term fiscal challenges from tariffs remain unclear.
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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 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.
Risks: All investments are subject to risk, including possible loss of principal. Stock prices can fall because of weakness in the broad market, a particular industry, or specific holdings. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest- rate risk. As interest rates rise, bond prices generally fall. Diversification does not assure a profit or protect against a loss in a declining market.
USA: T. Rowe Price Investment Services, Inc., and T. Rowe Price Associates, Inc.
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