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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price


As of May 31, 2019 

Risks Rising—Favoring Income over Capital Appreciation

  • We further reduced exposure to equities in favor of cash and bonds as valuations are extended against a backdrop of rising risks, including slowing growth and escalating trade tensions.
  • We moved to an overweight high yield bonds as yield levels remain attractive and fundamentals healthy. Relative to equities, high yield bonds currently offer similar return expectations with a lower volatility profile.
  • We pared back developed equities outside the U.S. given their exposure to slowing global manufacturing and rising risks from trade tensions.


As of May 31, 2019

Fed Put Affirmed, For Now

Equity markets experienced one of the largest U.S. Federal Reserve relief rallies in history as global central banks policies have pivoted to a more dovish stance in the face of low inflation and moderating growth. However, equity markets reversed course in May as it became evident that a trade deal was not imminent and quickly priced in nearly three rate cuts by the Fed by end of 2020. While the Fed has historically cut rates after a sustained pause, such an aggressive retrenchment in policy seems unlikely outside of an outright recession. Recent reassuring comments by Chairman Powell reinforced the markets’ expectation that the Fed put is alive and well. While tough to handicap the outcome of trade, for now markets think the Fed will provide a backstop if things worsen from here.

Futures Market Expectations for Fed to Cut in 2019

May 31, 2018 to May 31, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union (https://election-results.eu/tools/comparative-tool/), Bloomberg Finance L.P., and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.

Technology in the Crosshairs

Technology companies have found themselves in the crosshairs of the U.S.-China trade dispute. Not only are provisions on intellectual property, forced technology transfer, and critical technologies at the center of the dispute, the escalation in tensions has had an immediate impact on business sentiment and technology supply chains. With a shaky global growth outlook and waning business confidence, actual capital expenditures could disappoint particularly in cloud computing, which had been a bright spot in 2018. Additionally, non-tariff barriers, such as blacklisting Huawei and questions surrounding the supply of rare earth metals, represent yet another risk to investors in the technology space. The question remains, is this simply a temporary setback for business models fueled by secular change or are the long-term industry dynamics truly in question?

S&P 500 Industries With Highest Revenue Exposure to Mainland China

As of May 31, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union (https://election-results.eu/tools/comparative-tool/), Bloomberg Finance L.P., and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.

EU Rebuke of the Establishment

The European parliamentary elections confirmed that the populist surge continues with established parties suffering substantial losses, often at the hands of eurosceptics. The backlash has been increasing as social policies have failed to keep up with the inequalities caused by the liberalization of trade and outsourced manufacturing. Election results in Italy will likely strengthen the ruling anti-EU Lega party’s push for fiscal loosening whereas results in France show lack of popular support for Macron’s reformist economic agenda. Results in the UK were particularly concerning, as the newly formed Brexit party won the most votes with the governing Conservative party coming in a distant fourth. Unfortunately, investors seeking a safe haven from the political uncertainty prevalent in the U.S. and China are unlikely to find it in Europe.

European Parliament Change in Seats

As of May 31, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union (https://election-results.eu/tools/comparative-tool/), Bloomberg Finance L.P., and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.


As of May 31, 2019

United States

  • Dovish Fed, stable inflation
  • Healthy consumer spending, strong employment and improving wages
  • Lower rates driving a rebound in housing
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of world
  • Political uncertainty and trade tensions
  • Moderating economic growth with fading fiscal stimulus
  • Faltering capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and elevated margins
  • Muted near-term earnings expectations
  • Elevated corporate and government debt levels


  • Monetary policy remains very accommodative
  • Indirect beneficiary of China stimulus
  • Economic growth showing signs of stabilization
  • Eurozone economic growth is muted, with limited scope for ECB to respond
  • Export weakness, vulnerable to trade and China growth
  • Banking sector remains challenged
  • The composition of the new EU Parliament could lead to difficulties

Developed Asia/Pacific

  • Dovish stance from both the BOJ and RBA
  • China stimulus could support regional trade
  • Japanese fiscal stimulus implemented in April
  • Broadly attractive valuations, particularly in Japan
  • Improving corporate governance trends in Japan
  • Highly exposed to slowing global economic growth and trade tensions
  • Japanese economic and earnings growth continue to be much weaker than hoped
  • Australia facing slowing economy with weakness in housing
  • Australian earnings facing increased margin pressure

Emerging Markets

  • Muted (but rising) inflation, more dovish Fed gives central banks flexibility to ease
  • Beneficiary of Chinese stimulus
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
  • Export-driven economies are highly vulnerable to rising trade tensions
  • Instability in several key markets (Turkey, Argentina, and Brazil) could persist
  • Long-term China growth trajectory remains a headwind
  • China stimulus more measured and domestically focused
  • Currencies facing renewed pressure


As of May 31, 2019


As of May 31, 2019

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 2019 FactSet. All Rights Reserved.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
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.

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 a 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 that 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.

USA: For Institutional Investor Use Only. T. Rowe Price Investment Services, Inc., and T. Rowe Price Associates, Inc.

©2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.


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