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November 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 October 2024

  • Economic data continues to show signs of resilience and inflation remains on moderating path, providing room for further easing.
  • U.S. data holding up confirming soft landing as inflation nears target. European growth remains modest and bolstered by services, while manufacturing lags. Japanese growth modestly slowing as manufacturing output softened. Chinese stimulus expected to continue to bolster growth, though impacts so far have been modest.
  • Path of Fed cutting largely dependent on incoming data, while European Central Bank looks to advance easing as inflation data provides support. Bank of Japan signals commitment to their divergent path of rate hikes.
  • Key risks to global markets include elevated geopolitical tensions, central bank policy missteps, and path of Chinese growth.

Portfolio Positioning

As of 31 October 2024

  • Despite elevated valuations, we modestly increased our overweight to equities, on a more favorable outlook centered around easing monetary policy, Chinese stimulus measures, and potential for broadening earnings growth.
  • Within equities, although we remain overweight large-cap value based on more attractive valuations and potential for broader market participation, we slightly raised our allocation to large-cap growth as the sector should continue to see durable earnings growth from several high-quality companies.
  • Also, within equities, we took the opportunity to moderate our emerging markets overweight following the recent rally in China. Although Chinese stimulus should continue to provide a tailwind, potential policy shifts create uncertainty.
  • We maintain an overweight to cash relative to bonds. Cash yields remain attractive even as Fed embarks on easing as we expect a gradual path.
  • Within fixed income, we continue to favor higher-yielding sectors including high yield bonds, floating rate loans, and emerging markets bonds.

Market Themes

As of 31 October 2024

Checks and Balances

The markets’ immediate reaction to President Trump’s victory has for the most part played out as if his new term will take off where his last ended. A lot, however, has changed in the past four years and executing on many of his campaign promises including higher tariffs and deregulation could bring about inflationary pressures. When the President first took office in 2016, inflation was low and central banks had policy rates anchored at near zero levels in an effort to increase inflation. That’s not so today, as inflation is just finally nearing central bank targets, policy rates and bond yields are at much higher levels and deficit spending has only grown.

Facing Higher Inflation & Rates Today

As of 30 September 2024

Chart as discussed above

Past performance is not a reliable indicator of future performance.
Source: Bloomberg Finance L.P.

Because it is now looking increasingly possible that Republicans may also sweep both houses of Congress, market reaction is reflecting the increasing likelihood that Republicans will be able to quickly act on their agenda. While there will undoubtedly be significant changes in policy coming, it may be the forces of higher inflation and rates that prove to be the checks and balances that keeps some discipline in policy.

Earning their share 

Earnings Growth Differentials Beginning to Compress

As of 31 October 2024

Chart as discussed above

While the S&P 500 has continued to deliver strong earnings, it has been primarily driven by the Magnificent 7, and their performance has reflected that versus the broader market. And with their earnings now starting to slow from extreme levels on moderating spending in AI, investors are beginning to look to the “other 493,” which are seeing encouraging signs of earnings growth. This broadening began in the second quarter and has continued into the third quarter on the back of better economic growth and easing monetary policy. And while the direction is encouraging, their earnings are only moving up to low single digits from negative levels, while the Magnificent 7 are still expected to deliver growth near 20% levels.

Despite the earnings backdrop still favoring the Magnificent 7, still resilient economic growth, easing monetary policy, and now potential changes in fiscal and regulatory policies could provide tailwinds to companies beyond the Magnificent 7 – giving them a better shot at earning their share.

Regional Backdrop

As of 31 October 2024

  Views Positives Negatives
United States N
  • Fed has begun cutting rates
  • Resilient corporate earnings
  • Recent inflation reports have been favorable
  • Earnings boosted by AI infrastructure spending
  • Stock valuations have become challenging
  • Consumption trends are weakening
Canada N
  • Bank of Canada has cut rates significantly
  • Economic growth is improving
  • Corporate profit margins remain healthy
  • Unemployment is rising
  • Consumer debt levels are elevated
  • Equity valuations are slightly elevated
Europe U
  • Monetary policy expected to ease further
  • Unemployment remains low
  • Equity valuations are attractive
  • Economic growth remains weak
  • Geopolitical uncertainty remains heightened
  • Earnings growth is structurally weak
United Kingdom N
  • Monetary policy expected to ease further
  • Inflation concerns have moderated
  • Economic growth outlook has stabilized
  • Fiscal consolidation may need to be accelerated
  • Tight labor markets could keep wage inflation stubbornly high
Japan N
  • Reflationary environment continues
  • Corporate governance improvements continues
  • Weaker yen is boosting earnings forecasts
  • Political instability is impacting foreign investment flows
  • BoJ will maintain a hawkish bias due to string wage growth
  • Manufacturing indicators are weak due to a drop in global demand
Australia U
  • Australian dollar up on monetary policy divergence
  • Government stimulus remains supportive
  • Market pricing appears to be too optimistic about future rate cuts
  • Valuations are elevated despite earnings weakness
  • Margins are at risks due to elevated wage growth
Emerging Markets O
  • China has enacted coordinated stimulus efforts
  • Chinese stimulus has positively impacted investor sentiment
  • Monetary policy is loosening in many emerging markets
  • Chinese property deleveraging continues to weigh on activity
  • Export demand from developed markets remains muted
  • Geopolitical risks are rising

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 October 2024

Asset Allocation Committee Positioning table

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.

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. Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representa- tions 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.

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 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 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 written 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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