February 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 stance across global risk assets. Though valuations are extended, earnings momentum and economic growth remain favorable, underpinned by still-accommodative fiscal policies across most regions.
- U.S. economic growth remains resilient fueled by AI-driven capital spending and supportive fiscal and monetary policies, although labor market data continues to reflect a softening.
- Markets outside the U.S. continue to benefit from improving fundamentals, supported by fiscal spending, notably in Europe and Japan.
- Key risks to global markets include any threat to AI-driven growth, sticky inflation, a sharper-than-expected deterioration in labor markets, shifting policy expectations, and persistent geopolitical tensions.
Themes Driving Positioning
Wishy-Warshy
The nomination of Kevin Warsh as Federal Reserve chair has introduced fresh uncertainty into an already delicate monetary policy backdrop. Markets initially recoiled on the news, seeing Warsh as more hawkish given his past criticism of quantitative easing and zero interest rate policy adopted after the GFC. Given the ongoing pressure from the administration to lower rates, Warsh seemed like an odd choice, given he was perceived to be the most hawkish among the potential candidates. And while he may have had hawkish views in the past, his recent comments on deflationary impacts of AI-related productivity and tariffs being a one-time hit to inflation suggest a more dovish view. However, those softening inflation views could be challenged as fiscal policy tailwinds begin to hit what appears to be an already resilient economy. With this still clouded backdrop and even more division expected among the FOMC, the outlook for short-term rates looks as wishy-warshy as ever.
Fed Up with the Uncertainty1
Past performance is not a guarantee or a reliable indicator of future results
Data as of 31 January 2026 unless otherwise noted.
1 Sources: Bloomberg L.P. The data is represented by the US Categorical Economic Policy Uncertainty Monetary Policy Index.
Resistance
Despite still broadly positive AI-related news, market sentiment has turned more cautious. Large scale capex commitments to fund AI growth, that had been cheered last year, are now being met with greater skepticism as investors question the return on investment. While the AI theme has broadened to support other parts of the market, other sectors that might be disrupted by AI have found themselves in the crosshairs, notably software companies. The sector has been hit by fears that AI technology could displace software services and data analytics firms, with companies potentially developing their own in-house solutions using AI. The combined concerns over AI spending and potential disruption have pressured the technology sector, leaving it trailing most sectors of the market. As valuations continue to reset, we’d expect investors to reengage given the still powerful growth potential for AI. But, perhaps we’ve met a healthy point of resistance where investors are becoming more selective in distinguishing potential winners and losers.
Getting Picky2
Past performance is not a guarantee or a reliable indicator of future results
Data as of 31 January 2026 unless otherwise noted.
2 Source: Bloomberg L.P. and S&P. Please see additional disclosures for more information. Both data sets represent sub-sectors of the S&P 500 Index.
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 increase our overweight to small-caps given reasonable valuations, a constructive earnings outlook, falling 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 shifted to an overweight position in emerging market bonds as fundamentals continue to improve, supported by easing financial conditions associated with a weaker US dollar, funded from cash and 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 as hyperscaler capex pressures sentiment, yet AI-infrastructure demand supports earnings breadth. Labor market weakness and persistent inflation remain concerns.
Benefiting from fiscal support, easing inflation, and improving global growth backdrop. Cyclicals and financials remain notable areas of strength as sentiment improves.
Valuations are attractive and evidence of cyclical improvement are emerging. Fiscal constraints and labor market softness remain headwinds, but the BoE is moving toward a cutting bias.
Equity strength has been driven by global growth acceleration combined with a high likelihood fiscal stimulus. However, monetary policy is expected to tighten further.
Stimulus and improving fundamentals support equities, but elevated valuations and USMCA uncertainty remain reasons for concern.
Following underperformance over the last year, valuations are relatively attractive and natural resources demand is trending higher. However, monetary policy could remain a headwind.
Accelerating global growth, stable currencies, improving policy, and AIinfrastructure demand provide multiple tailwinds.
Policy support and improving activity aid sentiment, though weak labor markets, property stress, and subdued domestic demand persist.
Style & Capitalization Views
Mega-cap tech underlying fundamentals remain strong, but growing capex budgets facing heavier scrutiny. Extended valuations make risk/reward less attractive.
Economic growth outlook for 2026 supported by deregulation, fiscal policy, re-shoring and potential Fed cuts. However, thus far strength has been largely limited to AI build-out.
Growth stocks’ valuations are expensive and offer less sensitivity to improving global economic backdrop.
Improving fiscal outlook and normalized interest rate environment should continue to drive further earnings growth, particularly in financials.
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.
Small-cap earnings improving sharply due to lower rates, deregulation, fiscal stimulus and broadening AI benefits. Stronger M&A and IPO activity could lead to improving valuations.
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.
Further economic acceleration and a weaker dollar beginning to provide tailwinds for cyclical areas with still very attractive valuations.
Offers mitigation from rising inflation risks, and benefits from AI build-out demand. Precious metals have been subject to momentum, but geopolitical uncertainty likely to provide a durable tailwind.
Bonds
Regional & Sector Views
Stronger growth backdrop, sticky inflation and heavy issuance give curve a steepening bias. Credit fundamentals still supportive, with spreads expensive.
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, with limited recession risk.
Risk that inflation remains elevated due to staggered effects from tariffs and more stability to the economic growth backdrop.
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, potential for further monetary easing and liquidity considerations pose challenges.
Attractive yields and regional improvements supportive, though higher U.S. rates could weigh given sector’s longer duration profile.
Compelling yields combined with improving growth environment and expectations for a weaker U.S. dollar point to a favorable outlook.
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Portfolio Implementation
Equity
Tactical Allocation Weights
Bonds
Tactical Allocation Weights
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.
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.
© 2026 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, the Bighorn Sheep design and related indicators (see troweprice.com/ip) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners. Use does not imply endorsement, sponsorship, or affiliation of T. Rowe Price with any of the trademark owners.
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