Global Asset Allocation: January Insights

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

Making “Global ex-U.S.” Great Again?

In 2019, the U.S. stock market continued its streak of outperforming, rising by more than 31% versus 21% for the rest of the world, as measured by the S&P 500 Index and the MSCI All Country World ex-US Index (in USD). More surprising is that the U.S. market has outpaced the rest of the world by nearly 200% over the past decade. Markets outside the U.S. were plagued by a decade that saw the European debt crisis; two recessions in Europe; bouts of political uncertainty across the globe, including Brexit; and, more recently, the impacts of the trade war. Entering 2020, markets outside the U.S. are benefiting from easing trade tensions and stabilizing global growth, which could be a tailwind given their more cyclically oriented economies.

Un-pricing a Recession

The U.S. yield curve has reached its steepest level since October 2018 as investors continued to gain confidence in the growth outlook amid waning concerns about trade. In fact, yield curves around the world are showing signs of re-steepening as investors begin to shed lower-yielding assets for riskier ones. The curve steepening reflects a reversal of the safe-haven trade we saw in August that drove the U.S. yield curve into inversion, a common predictor of a recession. Although consensus is not calling for a full-blown reflation trade at this stage of the cycle, investors’ appetite for sectors that benefit from higher rates, like financials, has increased alongside inflation protected securities. Further improvement in sentiment and growth could lead to a continued repricing higher of inflation and rate expectations.

Show Me the Earnings!

After 2018’s tumultuous close to the year, U.S. stocks didn’t look back throughout 2019, with the S&P 500 Index closing near record levels, up more than 31%, although up just 12% annually over the past two years. Stocks found support from improving trade negotiations and the Federal Reserve’s success in engineering a “mid-cycle adjustment.” Strong performance and flat earnings growth pushed the price-to-earnings multiple for the S&P from 14.4 to 18.2 over the year. As we move into 2020, markets will be challenged to keep the momentum given the higher valuation starting point, without seeing earnings growth materialize.

For a region-by-region overview, download the PDF.

Past performance is not a reliable indicator of future performance.

Sources: Standard & Poor’s, MSCI, Bloomberg Finance L.P. (see Additional Disclosures), and financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.



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, 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.