August 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
- Markets have continued to demonstrate resilience, supported by stronger-than-expected corporate earnings and sustained AI-related investment, although geopolitical developments have contributed to volatility.
- The global economy remains supported by fiscal spending and technology investment, though growth is becoming more uneven across regions as higher energy costs and geopolitical uncertainty weigh differently across economies.
- The policy outlook remains highly data dependent as central banks continue to balance persistent inflation pressures, particularly those related to energy, with continued signs of stable economic growth.
- Key risks include renewed geopolitical escalation and commodity price volatility, persistent inflation, continued reliance on a narrow set of market leaders, and signs of deterioration in labor markets.
Themes Driving Positioning
From AI Spark to Earnings Fire
We recently moved modestly overweight stocks versus bonds, reflecting confidence in the durability of earnings rather than a broad risk-on view. Economic growth has remained resilient despite geopolitical disruptions, higher energy costs, and tighter financial conditions, reducing the risk of a near-term earnings downturn. More importantly, earnings momentum is broadening beyond the largest technology companies, with more sectors reporting stronger orders, improving margins, and upward revisions to guidance. AI-related investment is also extending into power, data centers, industrial equipment, automation, and connectivity, supporting a broader private-sector capital-spending cycle as fiscal support fades. Disinflation provides an important secondary tailwind. Softer inflation reduces the likelihood of further Fed tightening, creating a more supportive environment for stocks. At the same time, long-duration bonds remain exposed to heavy issuance, persistent fiscal deficits, and resilient nominal growth. With corporate balance sheets healthy, capital markets open, and investor positioning not excessively bullish, we believe equities offer a better balance of upside participation and relative risk.
Earnings Up, Multiples Down1
Data as of 31 July 2026 unless otherwise noted.
1Source: FactSet and S&P. Please see additional disclosures for more information.
Hiking, Holding, Cutting
The global policy cycle is becoming increasingly fragmented as central banks respond to different combinations of growth and inflation conditions, fiscal policies, and government measures to cushion energy shocks. In the U.S., softer inflation supports the case for the Federal Reserve to remain on hold, but resilient growth, AI-related investment, and continued fiscal support argue against a rapid shift toward easing. That leaves the Fed caught between upside and downside risks, with policy uncertainty likely to keep interest-rate volatility elevated. Elsewhere, policy paths are more distinct as central banks face different trade-offs. The European Central Bank may face renewed tightening pressure as higher energy costs combine with German fiscal expansion and resilient growth in parts of the euro area, including Spain and Italy. Australia and the U.K. may stay on hold as softer growth offsets lingering inflation pressures. Japan could still need to raise rates as temporary subsidy-driven relief masks underlying inflation pressures, while China may remain comparatively dovish given ongoing growth concerns. For investors, varying inflation trends and domestic growth conditions are likely to drive greater divergence across policy-rate paths, currencies, and regional markets.
One Cycle, Different Stops2
Data as of 31 July 2026 unless otherwise noted.
2Sources: IMF, CB Rates, with analysis by T. Rowe Price.
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 modestly increased our equities allocation predicated on a constructive corporate earning outlook with continued tailwinds from AI-related capex and fiscal stimulus though the uncertain geopolitical backdrop warrants some caution.
- Within equities, we continue to favor U.S. growth, emerging markets, and small-cap stocks.
- We have moved to an underweight position in bonds, while also maintaining a cautious stance on duration reflected through underweights to long-term U.S. Treasuries and Core bonds.
- We also maintain a long position in short-term TIPS held as inflation protection and remain constructive on high yield given solid corporate fundamentals.
- 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 elevated, but strong earnings, AI capex, and M&A support fundamentals. Inflation and policy uncertainty remain risks.
Fiscal support, improving manufacturing, and moderated energy risks improve the outlook, but economic growth remains modest.
Attractive valuations and healthy earnings remain supportive, but budget concerns, inflation, and policy uncertainty weigh on sentiment.
Fiscal stimulus, capex tailwinds, and improving earnings revisions support sentiment, while tighter monetary policy remains a risk.
Energy and materials exposure cushions inflation, but commodity tailwinds could fade as oil normalizes. Valuations remain slightly elevated.
Commodity exposure supports earnings, but restrictive monetary policy, softer labor markets, and energy-sensitive demand keep the outlook cautious.
Reasonable valuations and AI-infrastructure scarcity support further strength, but crowded positioning and earnings cyclicality pose risks.
Policy support and anti-involution efforts may aid margins, but housing weakness and soft demand keep gains uneven.
Style & Capitalization Views
Attractive valuations after momentum driven sell-off. Earnings growth remains exceptional but concerns about the sustainability of AI capex remain.
Strength in cyclically oriented sectors continuing to support value. However, valuation has become less attractive and catalysts may be peaking.
Growth stocks’ valuations are relatively expensive, while fundamentals remain somewhat underwhelming, and elevated energy costs pose a headwind.
Continued fiscal spending and normalized interest rates driving earnings growth, particularly in industrials, energy and financials. Valuations remain attractive.
Fundamentals continue to be exceptionally strong. However, mega-cap tech could be held back by increased caution around heavy capex spending.
Mid-caps have seen an influx of AI infrastructure capex beneficiaries that should improve earnings growth outlook but increase volatility.
Expectations for continued broadening of economic growth and increased capital market activity remain supportive. However, rising rates could become a headwind.
Rising fiscal stimulus, particularly in Europe and Japan supportive. However, cooling sentiment towards AI hardware and elevated energy costs could weigh.
Fiscal policies could provide a tailwind for cyclical areas with still very attractive valuations. Sector offers greater number of idiosyncratic opportunities.
Sector continues to offer protection from inflation shocks, while also benefitting from AI build-out demand and energy supply rebuild.
Bonds
Regional & Sector Views
Rates have moved higher on the back of persistent inflation pressures, solid growth and Fed uncertainty. Credit fundamentals still supportive, with spreads expensive relative to history.
Attractive yield levels, however higher vulnerabilities to energy price volatility warranting hawkish tone from the ECB and BoJ.
Upward pressure on long-end yields expected to continue due to concerns around inflation and fiscal deficits, with limited recession risk.
Although inflation expectations seem to have peaked, further pressure from volatile energy prices remains a risk.
Tight spreads may limit further upside potential, but sector is supported by healthy fundamentals, favorable sector exposures and low default expectations.
Sector still offers attractive yield levels, however, software sector challenges and tight spreads could limit further upside.
Attractive yields and fundamentals are supportive, though any progress toward resolution in Middle East conflict could boost sentiment.
Compelling yields and potential for local currencies to benefit on a softer dollar. Sentiment could see improvement if progress is made toward resolving tensions in the Middle East.
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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, MSCI 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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