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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price


As of July 31, 2019 

Caution Ahead

  • We continue to underweight equities in favor of cash and bonds as elevated equity valuations could be susceptible to downside risk from trade tensions and moderating global growth.
  • Despite year-to-date strength, we remain modestly overweight high yield bonds as they still offer attractive income with less downside relative to equities.
  • We remain overweight emerging market equities as valuations remain attractive and could find support from more dovish central banks, low inflation, and a weaker U.S. dollar.


As of July 31, 2019

The first cut is (unlikely) the deepest

As expected, the Fed cut interest rates for the first time since 2008 to “insure against downside risks” and ended the balance sheet runoff two months early. The 25 basis point cut was less than some pundits had hoped and was widely viewed as hawkish following Powell’s suggestion that this was a “midcycle adjustment” rather than the start of an easing cycle. However, history has shown that “insurance cuts” are often the first in a series to follow. President Trump’s subsequent ratcheting up of the trade war by extending tariffs to nearly all Chinese imports could likely necessitate the need for further easing. With U.S. 10-year treasury yields falling to the lowest level since 2016 on the news, the next cut may be right around the corner.

U.S. Treasury Yield Curves

Past performance is not a reliable indicator of future performance.
Source for Bloomberg Finance L.P.
Sources: Standard & Poor’s. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.

Will the EU bend to Boris’ hard line?

As expected, Boris Johnson sealed the Conservative Party leadership contest and was named UK prime minister. Since then Johnson has been galvanizing Brexit support and increasing pressure on negotiators with his commitment to renegotiating May’s Withdrawal Agreement, deleting the Irish backstop, and assuring exit will occur on October 31st, with or without a deal. With both sides entrenched and just three the months to go, the odds of a no-deal Brexit are perilously high. The uncertainty has sent the pound to a two-year low with further downside likely should a no-deal exit occur. Johnson’s slim majority leaves him vulnerable to a noconfidence vote but, even if a general election was called, it is not clear that any single party would gain enough support to stop what is looking more like the inevitable.

British Pound Cross Rates

Five Years Ending July 31, 2019

Past performance is not a reliable indicator of future performance.
Source for Bloomberg Finance L.P.
Sources: Standard & Poor’s. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.

U.S. multi-nationals feeling the pain

As 2nd quarter U.S. earnings season winds down, earnings beats have lifted results modestly into positive territory for the quarter, allaying fears of a possible earnings recession. However, slower global growth, a strong dollar, and trade disruption are taking a toll on multi-national companies, especially those with more that 50% revenue exposure outside the U.S., which have posted double-digit earnings declines this quarter. In contrast, domestically-oriented businesses are reporting mid-single digit growth supported by a resilient U.S. consumer. With the ratcheting up of tariffs on goods such as toys, apparel, and smartphones, U.S. consumer spending could retrench, and domestic-oriented companies may start feeling the pain too.

S&P 500 Earnings Growth: Q2 2019

As of July 31, 2019

Past performance is not a reliable indicator of future performance.
Source for Bloomberg Finance L.P.
Sources: Standard & Poor’s. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.


As of July 31, 2019

United States

  • Fed easing, stable inflation
  • Healthy consumer spending, strong employment, and improving wages
  • Lower rates driving a rebound in housing
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of world
  • Trade negotiations remain adversarial
  • Slowing economic growth with fading fiscal stimulus
  • Muted near-term earnings expectations
  • Faltering capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and elevated margins
  • Elevated corporate and government debt levels


  • Monetary policy increasingly accommodative
  • Indirect beneficiary of China stimulus
  • Economic growth showing signs of stabilization
  • Dividend yields remain strong
  • Economic growth is muted
  • Limited scope for ECB to stimulate further
  • Geopolitical risks remain elevated (e.g., Brexit)
  • Export weakness, vulnerable to trade and China growth
  • Banking sector remains challenged

Developed Asia/Pacific

  • Dovish stance from both the BOJ and RBA
  • China stimulus could support regional trade
  • Japanese fiscal stimulus implemented in April
  • Broadly attractive valuations, particularly in Japan
  • Improving corporate governance trends in Japan
  • Highly exposed to slowing global economic growth and trade tensions
  • Japanese economic and earnings growth continue to be weak, VAT increase looms
  • Australia facing slowing economy with weakness in housing
  • Australian earnings facing increased margin pressure

Emerging Markets

  • Muted inflation, more dovish Fed give central banks flexibility to ease
  • Beneficiary of Chinese stimulus
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
  • Export-driven economies are highly vulnerable to rising trade tensions
  • Instability in several key markets (Turkey, Argentina, and Mexico) could persist
  • Slowing long-term China growth trajectory remains a headwind
  • China stimulus more measured and domestically focused


As of July 31, 2019


As of July 31, 2019

Source T. Rowe Price

Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
These are subject to change without further notice.
Please see “Additional Information” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.

Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from Factset. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.

Source for MSCI data: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Copyright © 2019, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of S&P 500 in any form is prohibited except with the prior written permission of S&P Global Market Intelligence (“S&P”). None of S&P, its affiliates or their suppliers guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. In no event shall S&P, its affiliates or any of their suppliers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of S&P information.

Key Risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and therefore involve higher risks.
Foreign investing risk – Investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

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 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.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

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