January 2025 / 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 December 2024
- While global growth remains broadly resilient, with inflation trending lower, paths forward to vary as uncertain policy impacts create divergence.
- U.S. growth expectations higher on the back of pro-growth policies, despite concerns they could be inflationary and disrupt recent trends lower. European and Japanese growth remain soft. Chinese policymakers pledge additional stimulus and reforms to support the economy in the new year.
- U.S. Fed delivers a hawkish cut, pivoting back to inflation concerns, while ECB likely to act faster amid economy facing weaker growth and lower inflation. The BoJ anticipated to remain on its divergent path, with incoming inflation data supporting further hikes.
- Key risks to global markets include elevated uncertainty around policy changes, central bank missteps, geopolitical tensions, and are acceleration in inflation.
Portfolio Positioning
As of 31 December 2024
- We maintain a modest overweight to equities versus bonds given a favorable fundamental outlook, although constrained by valuation considerations and potential policy cross-currents.
- Despite broadly elevated equity valuations, we find opportunities beyond large-cap growth attractive, while bonds remain vulnerable to higher rates.
- Within equities, we favor more cyclical, value-oriented areas of the market supported by easing monetary policy and resilient growth, notably in the U.S., that could see further support through policy changes.
- We maintain an overweight to cash relative to bonds. Cash yields remain attractive, particularly with Fed easing expected to be more gradual.
- Despite rich valuations, all-in yield levels remain compelling and provide a buffer should spreads widen. Fundamentals remain attractive, with still modest default expectations.
Market Themes
As of 31 December 2024
Finding Middle Ground
Entering the new year with U.S. large-caps continuing their dominance, led by a narrow set of names, has investors once again asking when, if ever, a broadening in participation will take hold. We’ve certainly had fits and starts last year with smaller companies outperforming in July when markets were expecting a very dovish Fed, only to quickly unwind. They again came to life post-election on hopes for supportive policies, including deregulation and lower corporate taxes, only to fade once again as large-caps dominated into year-end. As we face heightened uncertainty around policy changes, inflation, rates and the Fed’s reaction to each, mid-cap equities stand out. Mid-cap relative valuations remain attractive vs. large-caps and relative to small-caps they are less vulnerable to higher rates, deliver more profitability and have less exposure to concentrated sectors. As we continue to anticipate a broadening in the market, the “middle ground” should be well-positioned to participate.
False Starts1
As of 8 January 2025
Performance data quoted represents past performance which is not a guarantee or a reliable indicator of future results.
Source: Bloomberg Finance L.P., S&P and Russell. Please see Additional Disclosures for more information.
1 Shaded areas represent periods of outperformance of small-caps. U.S. small-caps and U.S. large-caps are represented by the Russell2000 and S&P 500 indices, respectively.
Flip-Flop
Just a few months ago, the Fed’s narrative around easing policy began to shift toward stabilizing the labor market as it showed comfort with the decelerating path of inflation. The Fed seemed to flip-flop on that at their December meeting, taking a more hawkish tone on inflation, even as they lowered rates. The seemingly abrupt shift in tone caught markets a bit by surprise as they expected the “data-dependent” Fed to need a more notable reversal in trends for such an abrupt change. What was notable before they met was the outcome of the U.S. election, which markets quickly reacted to, speculating on the future impacts of policy changes. It seems like the Fed is now taking these risks into consideration as they make their policy decisions, which could further increase uncertainty on the path for rates.
Not So “Easy” Anymore
As of 31 December 2024
Regional Backdrop
As of 31 December 2024
| Views | Positives | Negatives | |
|---|---|---|---|
| United States | N |
|
|
| Canada | N |
|
|
| Europe | U |
|
|
| United Kingdom | N |
|
|
| Japan | O |
|
|
| Australia | U |
|
|
| Emerging Markets | O |
|
|
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 December 2024
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 December 2024
Tactical Allocation Weights
Tactical Allocation Weights
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 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.London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell isa trading name ofcertain of the LSE Group companies. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or thedata. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes ordata contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.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.
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. 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 no guarantee or a reliable indicator of future results.
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.
USA - Issued in the USA by T. Rowe Price Associates Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.
© 2025 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.
