April 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 March 2024
- Constructive near-term outlook on global economic growth against a backdrop of gradually easing inflationary pressures across most economies.
- U.S. growth remains the most resilient amongst developed economies while European and Japanese growth teeter near recession. Outlook for many emerging markets’ economies improving supported by easing inflation and lower rates, with signs that policy support is helping stabilize growth in China, although risks remain.
- U.S. Fed looking towards rate cuts this summer, but sticky inflation and resiliency in the economy have tempered expectations for an aggressive start to the cutting cycle. The European Central Bank appears closer to easing amid fragile growth and continued progress with inflation. Bank of Japan (BoJ) took its first step in unwinding ultra-easy monetary policy, although the path remains uncertain.
- Key risks to global markets include a retrenchment in growth, stubborn inflation, volatility surrounding central banks’ policy divergence, geopolitical tensions, and trajectory of Chinese growth.
Portfolio Positioning
As of 31 March 2024
- We remain overweight equities, supported by firming growth and moderating inflation, positive earnings trends, and reasonable valuations outside of large-cap growth.
- We shifted to a neutral position in U.S. small-caps, balancing valuation considerations against the likelihood interest rates remain higher-for-longer weighing more on smaller companies.
- Within fixed income, we remain modestly overweight cash relative to bonds. Cash continues to provide attractive yields with Fed rate cuts pushed further out and the yield curve remaining inverted.
- We added to U.S. Treasury Inflation-Protected Securities (TIPS) funded from long-term U.S. Treasuries, adding inflation protection should inflation settle higher, while reducing exposure to long-term yields that are likely to remain biased higher.
- Within fixed income, we remain overweight high yield and emerging markets bonds on still attractive absolute yield levels and reasonably supportive fundamentals.
Market Themes
As of 31 March 2024
Gimme Some Credit!
Since the 2008 financial crisis, private credit markets have grown to nearly 1.7 trillion USD and are expected to double over the next five years, as investors continue to recognize the potential benefits from diversification and enhanced income offered by the asset class. Recent interest has not just been driven by investors, but by borrowers seeking flexible financing arrangements amid a backdrop of rising rates and fewer options as banks have stepped back from lending. This retreat by banks has been due to a confluence of factors including recent losses, exposure to commercial real estate, tightening regulations, and de-risking following the 2023 regional bank failures. Private credit firms were able to fill the void in lending, expanding their market share and moving up in deal sizes. With the higher-for-longer rate environment persisting, many existing borrowers are feeling the stresses, notably those with floating rate obligations or those needing to refinance. Private credit firms’ expertise in lending across different quality and types of companies, including distressed, and commercial real estate could prove beneficial as these areas could see increasing opportunities in the near term.
Private Credit Market’s Rapid Growth1
As of 31 December 2023
1 Source: Federal Reserve.
Back In-the-Money?
U.S. equity markets are trading close to record levels fueled by a 10%+ gain in the first quarter. While the equity rally began with the “Magnificent 7” stocks and euphoria around Artificial Intelligence (AI) companies, markets are starting to broaden out. Worries about the Fed delaying the start of interest rate cuts following recent rounds of disappointingly sticky inflation data hasn’t slowed the momentum. Rather, equity investors have chosen to focus on the positives including better-than-expected economic growth, a broadly resilient job market and rising earnings estimates. Perhaps the biggest positive of all is signs that the “Fed put” may soon be back in-the-money, after having been abandoned as the Fed focused solely on fighting inflation, no matter the downside risks. Now, despite inflation still above target, Chairman Powell seems pretty intent on getting started on rate cuts this year. Perhaps the motivation is to get ahead of the elections or a worry that the lagged effects of tightening will finally start to crack the labor market. Whatever the reason, for now, equity investors seem to have yet another reason to rally, believing the Fed may be back to help mitigate downside risk.
Equities Undeterred by Fewer Cuts2
As of 31 March 2024
2 Source: Bloomberg L.P. and S&P. Please see Additional Disclosures page for additional legal notices & disclaimers.
Regional Backdrop
As of 31 March 2024
| Views | Positives | Negatives | |
|---|---|---|---|
| United States | N |
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| Canada | N |
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| Europe | U |
|
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| United Kingdom | N |
|
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| Japan | O |
|
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| Australia | N |
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| Emerging Markets | O |
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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 March 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 March 2024
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.
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IMPORTANT INFORMATION
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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.
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