April 2025
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
- Increased trade policy angst has threatened the resiliency of global growth while stoking fears of inflation, warranting a more cautious stance.
- U.S. growth expectations slowing under weight of uncertainty, while sentiment in Europe and China improving on policy support hopes, despite tariff threats.
- With monetary policy remaining broadly accommodative, disruptive trade policies could force central banks to make uneasy choices to support growth despite threats of higher inflation, which is most pronounced in the U.S.
- Key risks to global markets include escalating trade wars’ impact on growth and reaccelerating inflation, central bank missteps, and geopolitical tensions.
Themes Driving Positioning
Cold Feet
Almost every measure of consumer and business sentiment, aka “soft data,” has notably deteriorated amid rising uncertainty around trade policy. While sentiment usually lags “hard data,” like employment and spending, today’s soft data is signaling a far more dire outlook than the hard data is implying. The real concern is if businesses and consumers continue to face this level of uncertainty for a prolonged period. If this is the case, they are likely to have cold feet when it comes to investment, purchasing, and hiring decisions. With trade disputes lasting for nearly a year and a half during President Trump’s first term, the sentiment could be right this time around, foreshadowing a deeper slowdown in the economy. Given the heightened risk, we continue to lower our equity exposure.
Perception vs. Reality
Performance data quoted represents past performance which is not a guarantee or a reliable indicator of future results.
Data as of 28 February 2025 unless otherwise noted.
Sources: Bloomberg L.P., Standard & Poor’s and MSCI. Please see Additional Disclosures for more information about this sourcing information.
European Vacation?
For most investors, the outperformance in European equities this year has been a big surprise. The start of the year saw Europe facing a bleak economic backdrop, lingering war between Ukraine and Russia, political discord and threats of U.S. tariffs on the horizon. This follows decades of turmoil, including political instability, debt crisis and Brexit, leaving most investors skeptical in allocating to the continent. The recent outperformance, however, comes amid notable policy shifts, including increased fiscal spending from Germany on defense and infrastructure and a more unified commitment from leaders across the region on improving competitiveness. Despite tariff uncertainty, sentiment toward the region has quickly shifted and flows are following. We see this as more than a short vacation, and are adding to European equities, on upside potential to capex spending and lending.
The Great Rotation?
Performance data quoted represents past performance which is not a guarantee or a reliable indicator of future results.
Data as of 28 February 2025 unless otherwise noted.
Sources: Bloomberg L.P., Standard & Poor’s and MSCI. Please see Additional Disclosures for more information about this sourcing information.
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Asset Allocation 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
- As uncertainty around trade persists, we trimmed our overweight to equities, but remain modestly overweight supported by still solid earnings growth and potential for pro-growth fiscal policies.
- Within equities, we favor value, which should benefit from a continued broadening away from U.S. large-cap growth, where valuations are more expensive.
- Within regions, we see better opportunities outside of the U.S. on improving sentiment supported by increased fiscal spending as well as dovish central banks.
- We maintain a modest underweight position in bonds as we expect rate volatility to persist around mixed growth and inflation data as well as policy uncertainty.
- We remain overweight spread sectors including high yield, emerging market bonds, and floating rate loans on attractive all-in yields. Fundamentals remain supportive, although spreads are vulnerable to impacts of trade uncertainty.
- We added to global bonds outside the U.S. on a USD-hedged basis given attractive yield levels following recent shift upward in rates.
- We remain modestly overweight cash, as it still provides attractive yields and liquidity.
- Cash could provide liquidity to take advantage of market opportunities amid expected volatility.
Equities
Regions
U.S. equities face a difficult near-term environment given extreme policy uncertainty, potentially peaking capex spending, and elevated valuations.
Upside economic surprises, the potential for increased fiscal spending, and reasonable valuations could provide near-term upside. However, the possibility of an extended trade war clouds the outlook.
Valuations are attractive, and the U.K. is less susceptible to tariffs than continental Europe. Economic growth may be challenged over the near-term, but longer-term outlook is healthy.
Modestly higher inflation coupled with rising wages are welcome changes, given the positive impact on consumption. Corporate governance improvement remains an intermediate-term tailwind.
The possibility of an extended trade war significantly complicates the outlook. However, corporate fundamentals and monetary policy are supportive, and political changes are expected to be business friendly.
Labor market remains very strong and commodity prices improving due to China stimulus. However, valuations are elevated despite tepid earnings growth.
Stock valuations are attractive. Global economic growth likely to benefit from monetary policy tailwinds. However, tariff uncertainty is a notable area of concern.
Credit conditions appear to be bottoming, the housing sector is stabilizing, and further policy support is expected. However, structural challenges remain and tariffs could pose a headwind.
Style & Market Capitalization
AI monetization and capex spend continues to be scrutinized as earnings outlook has begun to deteriorate. Valuations remain elevated despite recent sell-off.
Expectations for deregulation and manufacturing sector improvement supportive of cyclical sectors and could lead to continued broadening of earnings growth, although slower economic growth a risk.
Growth stocks’ valuations are more expensive and face headwinds from persistent consumer weakness in emerging markets.
A paradigm shift in the fiscal spending outlook combined with still dovish monetary policy and a normalized interest rate environment should catalyze improvement.
Elevated valuations and concentration risks remain a concern. However, strong fundamentals and healthy free cash flow levels offer a buffer against economic slowdown.
Mid-cap offers less exposure to financing risks and more potential for higher quality earnings growth relative to small-caps.
Economic growth uncertainty and higher-for-longer rate environment have posed challenges. However, potential for deregulation and stronger M&A activity supportive.
Trade uncertainty and geopolitical risk remain concerns, however, improving stimulus outlook and stabilization in Chinese growth offers support.
Monetary easing, lower inflation, and less exposure to trade policy could provide tailwinds with still very attractive valuations.
Sector offers protection against sticky inflation. Increase in precious metals prices has been beneficial, while peaking shale productivity could ultimately lead to higher oil prices.
Bonds
Softer growth weighing on yields, while sticky inflation could keep upward pressure. Within credit, fundamentals supportive, though spreads remain tight.
Hedged yields more attractive. Lower deficits in key regions outside the U.S. allowing for increased fiscal spend, while central banks have room to cut.
Lower growth expectations weighing on yields, however, concerns around stickier inflation and increased fiscal uncertainty remain.
Inflation could remain sticky or surprise higher due to effects from tariffs, however, breakeven levels are largely reflective of these risks.
Spreads have widened recently on increased uncertainty but remain tight on supportive fundamentals and still muted default expectations.
Less aggressive Fed cutting path should benefit floating rate loans with valuations attractive and still strong underlying fundamentals.
Sector supported by attractive yields, but risks include tighter financial conditions from a stronger U.S. dollar and rising U.S. interest rates.
Attractive yield levels, while U.S. dollar uncertainty and fiscal challenges continue to pose headwinds.
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Equity
Tactical Allocation Weights
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Tactical Allocation Weights
Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2025 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.
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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. Performance data quoted represents past performance which 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. 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.
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