Markets & Economy

2020 Global Market Outlook

Comfortable With the Uncomfortable

December 19, 2019
The “reflation trade” appears real, but risks are still elevated.

Key Points

  • Although the 2020 outlook remains guarded, monetary accommodation by key central banks appears to have put the global economy on a reflationary course.
  • Low or negative yields pose duration risks for sovereign bonds. Potential opportunities can still be found in corporate bonds and other credit sectors.
  • We expect technology to continue to disrupt global sectors. For example, falling renewable energy costs have been turning many utilities into earnings growers.
  • Geopolitical events, including the U.S. presidential election, the trade war, Brexit, and Hong Kong unrest, could be triggers for market volatility in 2020.

Heading into 2020, T. Rowe Price investment leaders believe global capital markets should be supported by continued economic growth and low but stable inflation rates. However, they also caution that a number of risks could trigger market volatility, including political uncertainties, slow earnings growth, and potential valuation excesses.

Investors will need to be “comfortable with the uncomfortable” to take advantage of potentially attractive opportunities, says Justin Thomson, chief investment officer (CIO), equity.

David Giroux, CIO, equity and multi‑asset, thinks much will depend on whether the economic reacceleration that equity markets appear to expect in 2020 actually happens.

In a time of widespread disruption, careful stock selection backed by fundamental research will remain critical, Giroux adds.

Following a stellar 2019, debt markets could prove more challenging going forward, according to Mark Vaselkiv, CIO, fixed income. Even a modest backup in yields in 2020 could significantly erode returns.

In a low‑ or even negative‑yield environment, Vaselkiv says, “we think the right blend of bank loans, high yield bonds, and emerging markets [EM] corporate bonds still makes sense.”

While economic headwinds were strongest in non‑U.S. markets in 2019, signs of stabilization are visible there as well, according to Thomson. EM equities appear to be best positioned to benefit from global reflation, Thomson adds. “Emerging markets are a cyclical asset class and should do better in that environment.”

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of December 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. Dividends are not guaranteed and are subject to change.

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