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April 2021 / MARKET OUTLOOK

Global Asset Allocation: April Insights

Discover the latest global market themes

1. Market Perspective

    The rollout of vaccines is likely to lead to easing lockdowns, continued economic recovery and release of pent-up demand. However, the recovery may be uneven and choppy because of concerns about virus variants, the economy overheating, rising inflation—particularly in the US—and elevated valuations of most risk assets.

    Monetary policy is likely to remain supportive, as is fiscal stimulus. These two combined should help provide a bridge between lockdowns and economic reopening.

    Inflationary pressures as well as more positive views on the economic recovery are leading to higher government bond yields.

    2. Portfolio Positioning

      We shifted to a modest underweight to equities relative to bonds and cash as the risk/reward profile of equities looks less attractive after a strong multiple-driven rebound since last March’s lows.

      As we sell stocks, we continue to lean into value versus growth. The valuation case for small‑caps is not as strong as for value. Hence, we reduced the small-cap exposure.

      The euro is at an attractive valuation relative to the US dollar. The vaccine situation in the EU will likely turn around in mid‑ to late April. This should support a stronger euro medium term, but the path is likely to be bumpy.

      3. Market Themes

      Closing the Gap

      As investors grew more optimistic late last year about the global economic recovery, small-cap stocks took off with a parabolic snapback, up over 100% since the lows of last March. While smaller companies tend to lead early in an economic recovery given their higher sensitivity to growth, the fast and furious pace of performance stands out. Meanwhile, cyclically oriented value stocks, which are also highly reliant on the trajectory of economic growth, have just begun to make up ground from the sell-off. While smaller companies may continue to benefit from reopening and stimulus in the US, a lot of the outperformance may be behind small-caps, while value stocks are likely to continue to benefit from the recovery, stimulus, higher rates and the potential for infrastructure spending. After nearly a decade of underperformance, perhaps this cyclical rally may be enough for value to close the gap versus growth stocks.

      Reason to Worry?

      Equity markets are riding higher on unwavering optimism, which has driven the S&P 500 up over 20% above its pre-COVID-19 levels. Despite higher valuations, bouts of risk and pockets of froth in the market—such as in bitcoin, home prices and special purpose acquisition companies—investors appear to have little concern. Perhaps there is no alternative to investing in equities with bond yields on the rise, but it’s hard to ignore events such as the retail investor GameStop short squeeze and enormous losses at Archegos Capital, a large private family office, which may have historically shaken the confidence of equity investors. While recent bad news is largely viewed as idiosyncratic, market valuations continue to get more extended, and the risk of one of these events sparking a more systemic sell-off could increase. But perhaps the systemic risk is already here, with the threat of even higher rates, inflation and now taxes.

       

      For a region-by-region overview, see the full report (PDF).

      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, nor is it intended to serve as the primary basis for an investment decision. 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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      April 2021 / INVESTMENT INSIGHTS

      Five Forces in International Equities Investors May Be Underestimating
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      April 2021 / MULTI-ASSET SOLUTIONS

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      March 2021 / MARKET OUTLOOK

      Global Asset Allocation: March Insights

      Global Asset Allocation: March Insights

      Global Asset Allocation: March Insights

      Discover the latest global market themes

      By Yoram Lustig

      Yoram Lustig Head of Multi-Asset Solutions, EMEA & Latam

      February 2021 / MARKET OUTLOOK

      Global Asset Allocation: February Insights

      Global Asset Allocation: February Insights

      Global Asset Allocation: February Insights

      Discover the latest global market themes

      By Yoram Lustig

      Yoram Lustig Head of Multi-Asset Solutions, EMEA & Latam

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