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February 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 January 2024

  • Global growth expectations have stabilized, near the same levels as last year, with disinflation gaining momentum hinting at a global “soft landing.”
  • U.S. growth remains most resilient amongst developed economies while European growth remains weak. Emerging markets growth outlook is improving, with hopes for stabilization in China driven by policy support.
  • Progress on inflation and stable growth gives support for the U.S. Fed and other central banks to pivot toward rate cuts. European Central Bank is moving closer to easing as it balances fragile growth and inflation. Bank of Japan cautiously eyes exiting negative rate policy in the first half of this year.
  • Key risks to global markets include impacts of geopolitical tensions, central banks’ policy divergence, a retrenchment in growth, resurgence in inflation, and trajectory of Chinese growth and policy.

Portfolio Positioning

As of 31 January 2024

  • We maintain a balanced view on equities supported by positive earnings trends and loosening financial conditions, against a backdrop of elevated valuations.
  • We trimmed our overweight to emerging market equities and added modestly to real assets. Despite attractive valuations and policy commitment from Chinese officials, we expect a tepid recovery in growth.
  • We also trimmed our overweight to U.S. small-caps and added to U.S. large-cap value as we think a firming cyclical environment, where both growth and inflation stabilize from here, could favor value stocks.
  • Within fixed income, we remain modestly overweight cash relative to bonds. Cash continues to provide attractive yields and liquidity to take advantage of potential market dislocations.
  • Within fixed income, we remain overweight high yield and emerging market bonds on still attractive absolute yield levels and reasonably supportive fundamentals.

Market Themes

As of 31 January 2024

No Quick Fix

Despite a range of stimulus measures rolled out since the second half of 2023, China’s economy remains challenged as little so far has led to a meaningful turnaround in activity or its stock market’s decline. While Chinese officials pledge more aggressive support, investors are becoming increasingly concerned as there seems to be a disconnect with consumer confidence sliding along with stock prices–slipping to five-year lows. While China’s troubled property sector remains at the crux of the country’s current issues, record youth unemployment above 20%, a declining population, and deflationary pressures caused by weak domestic and export demand have added to the list of headwinds. And while recent data has shown somewhat of a stabilization in declining home prices in response to stimulus measures, sales remain weak and recent news surrounding the forced liquidation of Evergrande–the country’s largest property developer–is yet another challenge to the beleaguered sector. While policymakers look to shore up the foundation of the world’s second largest economy this year, a “quick fix” is unlikely to be enough, leaving investors hopeful for more substantial policy changes to bring more sustainable growth to China.

Chinese Equities Seeing Weakness Amid Policy Uncertainty1

As of 31 January 2024

Chart as discussed above

Past performance is not a reliable indicator of future performance.
1 Source: Bloomberg L.P. Data represented by the CSI 300 Index.

Keep On Keeping On

After a strong fourth quarter rally on rate cut hopes, investors turned a bit skittish at the start of 2024 on better-than-expected economic data pushing out those hopes–but it has since rallied back sending the S&P 500 to record highs. It is not surprising to see equity markets cheering the growing prospects of a “soft landing” with growth intact and inflation easing, giving the Fed the greenlight to loosen financial conditions in coming months. Companies too are proving resilient with earnings expectations improving and easing costs helping to boost margin expansion this year. Big Tech earnings and AI euphoria are also lending support. While the momentum may continue, extended valuations and complacency could leave markets ripe for correction. There is a lot riding on the Fed keeping the course on easing that remains vulnerable to incoming data, geopolitical flashpoints are increasing across the globe and the U.S. is nearing another contentious election in coming months. But for now, it looks like stocks could keep on keeping on, looking through the risks, pointing to the positives on the both the economic and earnings front.

S&P 500 Index Hit New Highs in 20242

As of 31 January 2024

Chart as discussed above

Past performance is not a reliable indicator of future performance.
2 Source: Bloomberg L.P. Data represented by the S&P 500 Index. Please see Additional Disclosures for more information about this sourcing information.

Regional Backdrop

As of 31 January 2024

  Views Positives Negatives
United States N
  • Federal Reserve expected to cut soon
  • Consumer spending remains strong
  • Labor market has been very resilient
  • Earnings expectations are increasing
  • Lagged effects of monetary policy remain a risk
  • Stock valuations have become challenging
  • Wage growth could pressure corporate margins
Canada N
  • Monetary tightening is close to a peak
  • Inflation is gradually moderating
  • Economic growth has slowed significantly
  • Consumer savings balances are fading sharply
  • Unemployment has increased recently
Europe U
  • Inflation continuing to cool
  • European Central Bank likely finished hiking
  • Labor market has been resilient
  • Inflation remains elevated, particularly core inflation
  • Monetary policy is restrictive
  • Economic growth is slowing
United Kingdom N
  • Inflation has begun to moderate
  • Bank of England may be finished hiking
  • Labor market has been resilient
  • Fiscal consolidation may need to be accelerated
  • Tight labor markets could keep wage inflation elevated
  • Bank of England may be forced to keep rates higher
Japan O
  • Economy benefitting from uptick in inflation
  • Corporate governance continues to gradually improve
  • Equity valuations remain attractive
  • Monetary policy becoming incrementally tighter
  • Yen weakness has weighed on equity market returns
  • Earnings expectations may need to be revised lower
Australia N
  • Resilient housing market supporting wealth effect
  • Fiscal stimulus likely to come if economy deteriorate
  • Persistent wage growth is buoying consumer confidence
  • Monetary policy is likely to remain tighter for longer
  • Higher interest payments are likely to weigh on
  • consumer spending
  • Corporate earnings expectations remain bearish
Emerging Markets O
  • Monetary tightening in most emerging markets
  • has peaked
  • Equity valuations are attractive relative to the U.S.
  • Chinese stimulus expected to continue
  • Chinese property deleveraging continues to weigh on activity
  • Chinese consumer and business confidence fragile

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 January 2024

Asset Allocation Committee Positioning table

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 January 2024

Tactical Allocation Weights: Equity
Tactical Allocation Weights: Fixed Income

1 U.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.

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, 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.

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