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April 2024 / 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 31 March 2024

  • Constructive near-term outlook on global economic growth against a backdrop of gradually easing inflationary pressures across most economies.
  • U.S. growth remains the most resilient amongst developed economies while European and Japanese growth teeter near recession. Outlook for many emerging markets’ economies improving supported by easing inflation and lower rates, with signs that policy support is helping stabilize growth in China, although risks remain.
  • U.S. Fed looking towards rate cuts this summer, but sticky inflation and resiliency in the economy have tempered expectations for an aggressive start to the cutting cycle. The European Central Bank appears closer to easing amid fragile growth and continued progress with inflation. Bank of Japan (BoJ) took its first step in unwinding ultra-easy monetary policy, although the path remains uncertain.
  • Key risks to global markets include a retrenchment in growth, stubborn inflation, volatility surrounding central banks’ policy divergence, geopolitical tensions, and trajectory of Chinese growth.

Portfolio Positioning

As of 31 March 2024

  • We remain overweight equities, supported by firming growth and moderating inflation, positive earnings trends, and reasonable valuations outside of large-cap growth.
  • We shifted to a neutral position in U.S. small-caps, balancing valuation considerations against the likelihood interest rates remain higher-for-longer weighing more on smaller companies.
  • Within fixed income, we remain modestly overweight cash relative to bonds. Cash continues to provide attractive yields with Fed rate cuts pushed further out and the yield curve remaining inverted.
  • We added to U.S. Treasury Inflation-Protected Securities (TIPS) funded from long-term U.S. Treasuries, adding inflation protection should inflation settle higher, while reducing exposure to long-term yields that are likely to remain biased higher.
  • Within fixed income, we remain overweight high yield and emerging markets bonds on still attractive absolute yield levels and reasonably supportive fundamentals

Market Themes

As of 31 March 2024

Gimme Some Credit!

Since the 2008 financial crisis, private credit markets have grown to nearly 1.7 trillion USD and are expected to double over the next five years, as investors continue to recognize the potential benefits from diversification and enhanced income offered by the asset class. Recent interest has not just been driven by investors, but by borrowers seeking flexible financing arrangements amid a backdrop of rising rates and fewer options as banks have stepped back from lending. This retreat by banks has been due to a confluence of factors including recent losses, exposure to commercial real estate, tightening regulations, and de-risking following the 2023 regional bank failures. Private credit firms were able to fill the void in lending, expanding their market share and moving up in deal sizes. With the higher-for-longer rate environment persisting, many existing borrowers are feeling the stresses, notably those with floating rate obligations or those needing to refinance. Private credit firms’ expertise in lending across different quality and types of companies, including distressed, and commercial real estate could prove beneficial as these areas could see increasing opportunities in the near term.

Private Credit Market’s Rapid Growth1

As of 31 December 2023

Chart as discussed above

1 Source: Federal Reserve.

Back In-the-Money?

U.S. equity markets are trading close to record levels fueled by a 10%+ gain in the first quarter. While the equity rally began with the “Magnificent 7” stocks and euphoria around Artificial Intelligence (AI) companies, markets are starting to broaden out. Worries about the Fed delaying the start of interest rate cuts following recent rounds of disappointingly sticky inflation data hasn’t slowed the momentum. Rather, equity investors have chosen to focus on the positives including better-than-expected economic growth, a broadly resilient job market and rising earnings estimates. Perhaps the biggest positive of all is signs that the “Fed put” may soon be back in-the-money, after having been abandoned as the Fed focused solely on fighting inflation, no matter the downside risks. Now, despite inflation still above target, Chairman Powell seems pretty intent on getting started on rate cuts this year. Perhaps the motivation is to get ahead of the elections or a worry that the lagged effects of tightening will finally start to crack the labor market. Whatever the reason, for now, equity investors seem to have yet another reason to rally, believing the Fed may be back to help mitigate downside risk.

Equities Undeterred by Fewer Cuts2

As of 31 March 2024

Chart as discussed above

2 Source: Bloomberg L.P. and S&P. Please see Additional Disclosures page for additional legal notices & disclaimers.

Regional Backdrop

As of 31 March 2024

  Views Positives Negatives
United States N
  • Expectations are for favorable earnings growth
  • Consumer spending remains strong
  • Labor market has been very resilient
  • Fed expected to cut rates this year
  • Stock valuations have become challenging
  • Lagged effects of monetary policy remain a risk
  • Wage growth could pressure corporate margins
  • Political uncertainty heightened
Canada N
  • Bank of Canada expected to cut rates this year
  • Inflation is gradually moderating
  • Labor market has been resilient
  • Economic growth has slowed significantly
  • Consumer savings balances have faded
  • Elevated interest rates remain a drag on spending
Europe U
  • Inflation has been steadily declining
  • European Central Bank expected to cut soon
  • Labor market has been resilient
  • Monetary policy is restrictive
  • Economic growth remains weak
  • Geopolitical uncertainty is heightened
United Kingdom N
  • Inflation has been steadily declining
  • Bank of England likely to cut this year
  • Labor market has been resilient
  • Fiscal consolidation may need to be accelerated
  • Tight labor markets could keep wage inflation elevated
Japan O
  • Economy welcomes inflation after decades fighting deflation
  • Corporate governance continues to gradually improve
  • BoJ remains accommodative despite recent hike
  • Earnings expectations are high, raising the bar for upside surprises
  • Yen weakness could raise pressure on the BoJ to hike
Australia N
  • Labor market tightness may have peaked
  • Fiscal stimulus to alleviate loss of real income
  • Economic data appears to be bottoming
  • Reserve Bank of Australia remains hawkish
  • Equity market valuations are rich
  • Earnings likely to disappoint due to lack of pricing power
Emerging Markets O
  • Monetary tightening in most emerging markets has peaked
  • Equity valuations are attractive relative to the U.S.
  • Chinese economy incrementally improving
  • Chinese property deleveraging continues to weigh on activity
  • Chinese consumer and business confidence fragile
  • Meaningful fiscal stimulus measures appear unlikely

O = Overweight
N = Neutral
U = Underweight

Views are informed by the Asset Allocation Committee and Regional Investment Committees (United Kingdom, Europe, Australia, Japan and Asia) and reflect the equity market.

Asset Allocation Committee Positioning

As of 31 March 2024

Asset Allocation Committee Positioning table

1 For 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.

Portfolio Implementation

As of 31 March 2024

Tactical Allocation Weights: Equity
Tactical Allocation Weights: Fixed Income

1 U.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 2024 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.
The S&P Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); DowJones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). This product is not sponsored, endorsed, sold or promotedby SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in suchproduct(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Index.

Additional Disclosures:

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 2024 FactSet. All Rights Reserved.

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.
ESG and Sustainability risk – May result in a material negative impact on the value of an investment and performance of the portfolio.
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.

IMPORTANT INFORMATION

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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