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December 2021 / INVESTMENT INSIGHTS

Global Asset Allocation Viewpoints

Our experts share perspective on market themes and regional trends, plus insights into current portfolio positioning.

Market Perspective

As of 30 November 2021

  • Although expected to moderate from current levels, global growth and inflation remain above trend. New threats from COVID variants and continued supply chain disruptions and energy shortages could pose headwinds to growth, while placing upward pressure on inflation.
  • Global monetary policy to continue path towards tightening with U.S. Fed appearing more hawkish, while the European Central Bank and Bank of Japan maintain policy. Meanwhile, rate hikes continue to advance across emerging markets in response to higher inflation and to defend their currencies.
  • Global short-term rates likely to trend higher with central bank tightening, while long-term rates react to lingering inflation pressures and renewed concerns about growth and policy missteps.
  • Key risks to global markets include new variants, persistent inflation, supply chain disruption, energy shortages, central bank missteps, a downshift in China growth trajectory, and increasing geopolitical concerns.

Portfolio Positioning

As of 30 November 2021

  • We remain modestly underweight equities relative to bonds and cash given stocks’ less compelling risk/reward profile, balancing elevated valuations against decent but moderating growth and potentially persistent inflation. Higher rates, rising input costs related to supply chain bottlenecks and fading monetary and fiscal policy could pose challenges to near-term earnings outlook.
  • Within equities, we continue to tilt toward cyclicality, maintaining overweights to value-oriented equities globally, U.S. small-caps, and emerging market stocks, where valuations are more reasonable and which should benefit from a continued path of recovery.
  • We shifted a portion of our U.S. value exposure into core equities where we find more attractively valued companies which have the potential to do well in a moderate growth environment.
  • Within fixed income, we continue to favor shorter duration and higher yielding sectors through overweights to floating rate loans and high yield supported by our constructive credit outlook. This month we rotated some of our high yield exposure into floating rate as we believe the sector should benefit from higher short-term rates.

Market Themes

As of 30 November 2021

Not Too Hot, Not Too Cold

While stocks have broadly rallied nearly 80% off the lows of March 2020, leadership within has flip flopped between expensive, defensive growth names to cheaper cyclicals and back again. The roller coaster ride has been driven by rotations from COVID-on to COVID-off, China regulatory fears, and worries over Fed tapering. As we move into 2022, expectations are for moderating growth–yet still above potential–and easing inflationary pressures. Companies offering growth-at-a-reasonable price could be in vogue–where growth is not hot enough to drive the deepest cyclicals and not cold enough to need the defensiveness of high-flying growth companies. Reasonably priced, higher quality companies that find themselves in the “core” of the market are looking more attractive, particularly those paying dividends as forward return expectations are well below the more-than-15% annualized returns we’ve seen over the last decade.

Large-Cap Growth vs. Value Performance1

As of 30 November 2021

Line graph showing trends of large cap growth versus value performance from February 2020 to November 2021

Past performance is not a reliable indicator of future performance.
1Large-Cap Growth vs Value returns are represented by the Russell 1000 Growth and Russell 1000 Value Indices respectively. Figures are shown in USD.
Source: Financial data and analytics provider FactSet. Copyright 2021 FactSet. All Rights Reserved.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Fed Up!

The Federal Reserve looks likely to accelerate its tapering of asset purchases when it meets later this month as it faces the risk that inflation does not recede as quickly as policymakers had hoped. With inflation at levels not seen in three decades, a tightening labor market, and strong consumer spending, conditions seem to warrant tighter policy. Fed Chairman Powell and other committee members have increasingly hinted at accelerating the process, admitting that elevated inflation could persist longer than initially anticipated. Ending asset purchases earlier would give the Fed more flexibility to pull rate hikes forward; although, Powell said the market should not link the two. While the Fed finally seems fed up with lingering inflation, the emergence of the Omicron variant is a wildcard that could weigh on growth, slow the nascent recovery in supply chains, and add to inflation worries. Already a challenge unwinding policy at a pace not to destabilize growth, things have gotten a bit more tricky for the Fed.

Number of Rate Moves Priced In for December 20222

As of 30 November 2021

Line graph showing estimated rate hikes into 2022.

Past performance is not a reliable indicator of future performance.
2Data represents the estimated number of Fed moves priced into the current forward-curve structure for December 2022. Actual outcomes may differ materially from estimates. Estimates are subject to change.
Source: Bloomberg Finance L.P.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Regional Backdrop

As of 30 November 2021

  Positives Negatives
United States
  • Healthy consumer balance sheets and high savings rate
  • Strong earnings growth
  • Infrastructure spending likely to increase
  • Supply chain issues are weighing on economic growth
  • Significantly elevated inflation
  • Elevated stock and bond valuations
  • Fed accommodation has peaked
  • Fiscal stimulus has peaked
Europe
  • Higher exposure to more cyclically oriented sectors that should benefit from economic recovery
  • Monetary policy remains accommodative
  • Fiscal stimulus likely to increase further
  • Equity valuations remain attractive relative to the US
  • Elevated energy prices and supply chain issues are weighing on economic growth
  • Rapidly rising COVID concerns
  • Limited long-term catalysts for growth
  •  Demand from China fading
Developed Asia/Pacific
  • Cyclical orientation should benefit from economic rebound
  • Strong fiscal and monetary support
  • Improving corporate governance
  • Vaccination rates have improved significantly
  • Attractive equity valuations
  • Weak economic growth going into crisis, driven by long-term demographic headwind
  • Demand from China fading
  • Limited long-term catalysts for growth
  • Elevated energy prices and supply chain issues are weighing on economic growth
Emerging Markets
  • Attractive equity valuations
  • Exposure to cyclical areas of economy should benefit from broad global recovery
  • Chinese regulatory actions likely to have peaked
  • Vaccination rates are improving
  • New coronavirus variant remains a notable threat
  • Heightened political and regulatory risk
  • Accommodation from central banks is fading

Asset Allocation Committee Positioning

As of 30 November 2021

Table showing Asset Allocation Committee Positionining by Asset Class

1For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.
The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Portfolio Implementation

As of 30 November 2021

Chart showing tactical weights by asset clas

1U.S. small-cap includes both small- and mid-cap allocations.
Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2021 FactSet. All Rights Reserved.
These are subject to change without further notice. Figures may not total due to rounding.
Neutral equity portfolio weights 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 representative of U.S.-biased portfolio with 55% allocation to U.S. investment grade.
Source:  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 analysisshould 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.
“Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend Global Asset Allocation Viewpoints. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Global Asset Allocation Viewpoints.

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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.

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