Markets & Economy

Quarterly Market Review

Third Quarter 2019
T. Rowe Price

The major indexes were mixed in the third quarter. The large‑cap S&P 500 Index and Dow Jones Industrial Average moved higher, helping the former build on its best start to a year in over two decades. The technology‑heavy Nasdaq Composite Index and the S&P MidCap 400 Index were basically flat, however, while the small‑cap Russell 2000 Index declined. The S&P MidCap 400 briefly joined the Russell 2000 back into correction territory, or down over 10% from recent highs. Stocks were also especially volatile in the middle of the period, with the Cboe Volatility Index (VIX) touching its highest level since the start of the year on August 5. Performance varied widely within the S&P 500, with utilities shares gaining over 9% on a total return (including dividends) basis, while energy shares sank over 6%. Technology stocks remained the leader on a year‑to‑date basis, up over 31% through the end of the quarter. 

U.S. Stocks
 

3Q 2019

 

Year-to-Date

 

Dow Jones Industrial Average

1.83%

 

17.51%

 

S&P 500 Index

1.70

 

20.55

 

Nasdaq Composite Index

-0.09

 

20.56

 

S&P MidCap 400 Index

-0.09

 

17.87

 

Russell 2000 Index

-2.40

 

14.18

Past performance is not a reliable indicator of future performance.
Note: Returns are for the periods ended September 30, 2019. The returns include dividends based on data compiled by T. Rowe Price, except for the Nasdaq Composite, whose return is principal only.
Sources: Standard & Poor’s, LSE Group. See Additional Disclosures.

Trade Optimism and the Fed’s Dovish Turn Drive Early Gains

The quarter began on a strong note. Stocks shot higher on the first trading day of the quarter, following news over the previous weekend of a truce in the U.S.‑China trade war at the G‑20 summit. Both sides agreed to hold off on further tariff increases, and the White House eased a ban on sales to Chinese telecommunications giant Huawei Technologies, giving a particular boost to semiconductor stocks. According to the White House, China also pledged to buy more U.S. agricultural goods, although Chinese officials reportedly disputed the claim.

Hopes for a decisively “dovish” turn in Federal Reserve policy also boosted sentiment. Fed Chair Jerome Powell testified before Congress on July 10 and assured lawmakers that policymakers were prepared to respond to a slowdown caused by economic weakness overseas and rising trade tensions. Investors were later encouraged by comments from Federal Reserve Bank of New York President John Williams, who said in a speech that “it pays to act quickly to lower rates at the first sign of economic distress.” The S&P 500 Index soon moved to an all‑time high, hitting its peak for the quarter on July 25.

Trade Tensions Rise Again on New Tariff Announcements

Disappointments on both the China and monetary policy fronts soon derailed the market’s gains, however. On August 1, stocks suffered their biggest intraday plunge since May, after President Donald Trump announced that the U.S. would impose a new 10% tariff on the roughly USD 300 billion in Chinese imports not currently facing duties. Investors may have been particularly concerned that the new consumer‑oriented tariffs slated for September 1 might have a broader and more visible impact on the U.S. economy than the USD 250 billion worth of mostly intermediate Chinese goods already taxed at a 25% rate.

Stocks plunged again on August 5, following a return salvo from China. Chinese officials allowed the yuan to fall below 7.0 per U.S. dollar, a threshold that they kept the yuan from breaching over the past decade. T. Rowe Price traders noted that the move played into growing concerns that the trade war could devolve into a currency war, although Chinese officials pledged that they would not engage in a competitive devaluation. Nevertheless, the White House quickly punched back, formally labeling China a “currency manipulator.” On August 23, Chinese officials announced a new set of retaliatory tariffs on USD 75 billion in U.S. goods, ordered a halt to the purchase of U.S. farm products, and reinstated tariffs on imports of U.S. autos and parts. After the close of trading, President Trump tweeted that the U.S. would respond by upping its own tariffs by 5%.

September saw trade negotiations get back on track, at least partially, helping markets stabilize. Stocks had one of their best days on September 5, after news broke that Chinese and U.S. negotiators were preparing to meet in Washington in early October. A series of conciliatory gestures from both sides further supported sentiment. On September 11, Chinese officials revealed a small list of U.S. products that would be exempt from new tariffs that were scheduled to take effect on September 17. President Donald Trump quickly responded by tweeting that the U.S. would postpone a 5% increase on USD 250 billion of imports from China from October 1 to October 15. Harsh criticism of China in a speech President Trump delivered to the United Nations weighed on sentiment again late in the quarter, as did reports that the White House might restrict U.S. investment in China and force U.S. exchanges to delist the American Depositary Receipts of Chinese companies.

Fed Suggests It May Not Cut Rates Aggressively

In mid‑July, futures markets had indicated a strong probability that the Fed would slash interest rates by 50 basis points (0.50%) at its upcoming meeting, but investors were disappointed on this front as well. Despite harsh criticism from President Trump, the Fed announced at its July 30–31 meeting only a quarter‑point reduction in the federal funds rate, along with an early end to its balance sheet reduction program. In his post‑meeting press conference, Fed Chair Powell also seemed to take markets by surprise by referring to the cut as a “midcycle adjustment.” The term implied to some investors that the Fed was not entering a pronounced easing cycle, and shares fell sharply in response. Indeed, although the Fed trimmed rates by a quarter point again at its next meeting on September 17–18, two members of the policy committee voted against the cut, and other officials indicated that the Fed might now be on hold as it waits to see how the economy responds to recent easing.

All Eyes Turn Toward the Consumer as Manufacturing Sector Weakens

Indeed, the quarter’s economic data provided no clear signal of how aggressively the Fed would need to act. Rising trade tensions and slowing growth overseas appeared to be taking a toll on the manufacturing sector, which fell into contraction mode in August, according to one closely watched gauge. Likewise, business investment remained weak, and quarterly profits shrank by double digits (versus a year before) for export‑oriented firms within the S&P 500, according to FactSet (see Additional Disclosures).

Meanwhile, the U.S. consumer appeared to be the stalwart of the global economy. Monthly payroll gains remained generally healthy, keeping unemployment near five‑decade lows and resulting in a long‑anticipated pickup in wage growth. Housing and retail sales grew at a healthy pace, and gauges of service sector activity remained within expansion territory—if well down from 2018 highs. Signs emerged late in the period that consumers might be growing more cautious, however. Gauges of consumer confidence fell back, and personal spending rose only slightly in August despite healthy income gains.

Recession Still Appears Unlikely, but Selectivity Will Be Key for Investors

Following the end of the quarter, further signs of weakness have emerged, particularly in the manufacturing sector. Opinions among T. Rowe Price investment professionals vary, but many believe that the U.S. economy will avoid falling into recession in the coming months. Importantly, no major signs of excess have emerged, as was dramatically the case with the housing bubble on the eve of the “Great Recession” a decade ago. Indeed, consumer finances are generally in solid shape, and corporate debt levels remain manageable. Nevertheless, selectivity will be key for investors in a slowing growth environment. Earnings gains are likely to be harder to come by as exporters, in particular, wrestle with trade tensions and weakness in many overseas economies.

Additional Disclosures
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. 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 or data 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.

S&P Indices are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and have 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”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Indices.

Copyright 2019 FactSet. All Rights Reserved. www.factset.com

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 as of the date written 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.

Overview

Developed non‑U.S. equity markets declined in the third quarter as ongoing trade tensions between the U.S. and China pressured economies in developed and emerging markets. Brexit uncertainty and violent demonstrations in Hong Kong added to the selling pressure.

Within the MSCI EAFE Index, which tracks developed markets in Europe, Australasia, and the Far East, seven sectors declined, led by losses in energy and materials, while four sectors advanced, with top gains in utilities and health care. Growth stocks in the EAFE index fell 0.40%, outperforming value shares, which returned ‑1.64%. 

International Indexes
     Total Returns

MSCI Index

    

3Q 2019

Year-to-Date

EAFE (Europe, Australasia, Far East)

 

-1.00%

13.35%

All Country World ex-U.S.A.

 

-1.70 12.06

Europe

 

-1.75

14.41

Japan

 

3.29

11.52

All Country Asia ex-Japan

 

-4.39

5.96

EM (Emerging Markets)

 

-4.11

6.22

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars and represent gross returns, as of September 30, 2019.
This chart is shown for illustrative purposes only and does not represent the performance of any specific security. Investors cannot invest in an index.
Source: MSCI. See Additional Disclosures.

Regional Recap

European Stocks Pressured by Trade Tensions and Brexit Worries

The MSCI Europe Index fell 1.75% as the region’s equity markets were pressured by trade tensions, slowing economic growth, and worries about a no‑deal Brexit. German equities were among the worst performers, falling 4.03% as the country’s economy teetered on the brink of recession. T. Rowe Price Economist Tomasz Wieladek said the risks to the German economy have intensified and helped push Germany into a manufacturing recession. In September, German factories recorded their worst performance since 2009, and job losses in the manufacturing sector spread. Whether this recession becomes more pervasive depends on how well the services sector holds up, he said.

ECB Loosens Policy; European Leaders Call for Fiscal Measures

In September, the European Central Bank (ECB) cut its deposit rate by 10 basis points and relaunched its quantitative easing program, saying that it would purchase EUR 20 billion of securities every month beginning November 1. Departing ECB President Mario Draghi said that the bank made this major policy shift mainly because the region’s underlying rate of inflation has been persistently and significantly below target for the past five years. However, he noted that ongoing global trade tensions and Brexit concerns had increased risks to the eurozone. Meanwhile, European leaders stepped up calls for governments to fill in the gaps to boost the economies of the region. Incoming ECB President Christine Lagarde has asked European governments with fiscal means to support the economy through increased spending and tax cuts. 

UK Pound, Equities Hit by Brexit Uncertainty

The British pound lost 3.17%, and equities fell 2.48% in U.S. dollar terms as Brexit uncertainty rattled investors. Since taking office on July 24, Prime Minister Boris Johnson has suffered myriad defeats in his bid to take the UK out of the European Union (EU) by October 31. A high court ruled his suspension of Parliament illegal, and Parliament voted to force him to seek a Brexit extension from the EU to avoid a no‑deal Brexit. Lawmakers are now calling for his resignation, and so many Conservative Party members of Parliament have defected that Johnson no longer holds a majority. As opposition mounts, the possibility of the UK leaving the EU without a Brexit deal has fallen, said T. Rowe Price Fixed Income Portfolio Manager Quentin Fitzsimmons, who estimates that there is a 55% chance of a no‑deal Brexit, a 35% chance of a further extension to Article 50, and a 10% chance that Parliament approves a modified version of former Prime Minister Theresa May’s withdrawal agreement. He also believes the odds of an election before year‑end are very high. 

BoE Holds Rates Steady, but Expectations for Rate Cut Rise

Expectations grew that the Bank of England (BoE) will cut interest rates as early as November even if a Brexit deal is reached. BOE policymaker Michael Saunders signaled that a cut may be under consideration, noting that Brexit uncertainty is acting like a brake on the UK economy. Wieladek agrees and expects the bank to cut rates up to two times, especially if the persistent uncertainty about the Brexit outcome leads the services sector of the economy to begin contracting. While the BoE kept rates on hold in September, it cut its third‑quarter growth forecast to 0.2% from 0.3%. In his worst‑case scenario, BoE Governor Mark Carney said that a no‑deal Brexit would reduce the size of the economy by 5.5% in the medium term, increase the level of unemployment, and double the rate of inflation. 

Japanese Equities Buoyed by Hopes of Rate Cuts

Japanese stocks rose, bucking the downward trend of their developed market peers, despite ongoing pressure on the export‑dependent economy from the U.S.‑China trade war. Stocks got a boost after the Federal Reserve (Fed) cut rates and as hopes increased that the Bank of Japan (BoJ) would follow suit and ease policy in October. At its most recent meeting, the BoJ signaled its willingness to stimulate the economy as early as October. The limited trade deal struck between the U.S. and Japan also buoyed sentiment. The deal will lower Japanese barriers to U.S. agricultural products while reducing U.S. tariffs on Japanese industrial goods. 

Emerging Markets Decline Amid Persistent Risk Aversion

Stocks in developing markets fell in the third quarter, when investors sold riskier assets as trade tensions, a slowing global economy, and geopolitical events took a toll on sentiment. The MSCI EM Europe, Middle East and Africa Index dropped 6.80% under pressure from a 12.44% decline in South African shares, which were hit by worries that financial troubles at state‑owned utility Eskom would hurt the country’s fiscal outlook and currency. The MSCI EM Latin America Index dropped 5.57% due to broad weakness in the region. Shares in Argentina fared worst, dropping almost 47% in U.S. dollar terms, as Alberto Fernández, the presidential candidate of the Peronist coalition, and his running mate, former President Cristina Fernández de Kirchner, won the presidential primary in August, defeating the market‑friendly President Mauricio Macri.

Global Growth Is Beginning to Slowly Improve

Significant moves by global central banks to loosen monetary policy have eased financial conditions, which is supportive of global economic activity. Indeed, the most recent global manufacturing purchasing managers’ surveys suggest that activity may have turned recently, especially outside of Europe. Even so, many global economies continue to weaken as a result of an adverse combination of ongoing trade tensions, slowing Chinese demand, and geopolitical disruptions, including Brexit, protests in Hong Kong, a mid‑September drone attack on major Saudi oil facilities, and impeachment proceedings in the U.S. Recent manufacturing surveys show some of the weakest activity since 2009. 

Additional Disclosures
MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

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 as of the date written 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.

Treasury yields declined during the quarter as the Federal Reserve cut rates for the first time in more than a decade amid growing concerns about a global economic slowdown. The yield of the 30‑year Treasury bond hit a record low in August, and the benchmark 10‑year Treasury note’s yield fell to its lowest level since 2016. (Bond yields and prices move in opposite directions.)

Total Returns    

Index

3Q 2019

YTD

Bloomberg Barclays U.S. Aggregate Bond Index

 2.27%

 8.52%

J.P. Morgan Global High Yield Index

 1.09

 11.27

Bloomberg Barclays Municipal Bond Index

 1.58

 6.75

Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index

 -0.58

 4.38

J.P. Morgan Emerging Markets Bond Index Global Diversified

 1.50

 12.99

Bloomberg Barclays U.S. Mortgage Backed Securities Index

 1.37

 5.60

Past performance is not a reliable indicator of future performance.
Figures as of September 30, 2019. This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, and J.P. Morgan. See Additional Disclosures.

Trade Dispute Escalation Drives Treasury Yields Lower

After starting July at 2.00%, the 10‑year Treasury yield reached a quarter high of 2.13% in mid‑July. However, President Donald Trump’s announcement that the U.S. would impose a 10% tariff on all remaining Chinese imports not currently facing duties led to a notable shift in sentiment at the beginning of August that drove Treasury yields lower. China responded by stopping all U.S. agricultural imports, and negative developments in the trade conflict continued throughout the month, sparking strong investor demand for high‑quality government debt.

The 10‑year Treasury yield hit 1.47%, its low for the three‑month period, on September 3. Yields then drifted higher amid conciliatory gestures from both sides of the trade dispute, but negative geopolitical and economic developments—notably the drone attack on Saudi Arabian oil facilities on September 14—moved to the forefront again during the second half of the month, renewing demand for Treasuries. 

Amid Concerns About Slowing Growth, the Fed Cuts Rates Twice

At the end of July, after signaling a shift to a more dovish outlook earlier in the year, the Fed cut its benchmark short‑term lending rate by a quarter percentage point, and a second cut in September reduced the fed funds rate to a range of 1.75% to 2.00%. In another accommodative gesture, central bank policymakers announced the end of balance sheet reduction two months earlier than previously planned.

The rate cuts were widely expected, but some investors had hoped for clearer messaging from policymakers. After the September meeting, Fed Chairman Jerome Powell provided little guidance about the central bank’s next move, but based on futures prices at quarter‑end, the market is expecting another quarter‑point cut by December.

Treasury Yields

Maturity

June 30

September 30

3-Month

2.12%

1.88%

6-Month

2.09

1.83

2-Year

1.75

1.63

5-Year

1.76

1.55

10-Year

2.00

1.68

30-Year

2.52

2.12

Source: Federal Reserve Board.

Investors Focus on Yield Curve Inversions

The shape of the Treasury yield curve was closely watched by investors during the period. In August, the two‑year/10‑year portion of the curve briefly inverted for the first time since 2007, and the three‑month/10‑year segment remained inverted for the entire three‑month period. Inversions occur when shorter‑maturity securities offer higher yields than longer‑maturity bonds, and inversions have preceded recessions in the past.

Longer‑Term Treasuries Produce Strong Returns

With the sharp drop in yields, longer‑maturity Treasuries were the top‑performing segment of the Bloomberg Barclays U.S. Aggregate Bond Index. Investment‑grade corporate bonds also produced solid returns as heavy new issuance was easily digested by strong demand. Mortgage‑backed securities faced headwinds as lower mortgage rates increased prepayment risk. Declining inflation expectations contributed to underperformance by Treasury inflation protected securities versus nominal Treasuries.

Municipal bonds produced solid results but lagged the Treasury rally for the period. Longer‑term muni yields reached all‑time lows as cash flowed into the muni asset class at a record pace, and the supply of bonds remained manageable. Strong demand for higher‑yielding securities, such as Puerto Rico debt and high yield tobacco bonds, helped lower‑quality munis outperform higher‑quality debt.

High Yield Bonds Deliver Modest Gains

The risk‑off environment in August weighed on high yield corporate bonds, but the sector produced modest gains for the quarter, adding to robust first‑half results. Floating rate loans were also positive but underperformed high yield bonds. Higher‑quality bonds in the sector generally held up better than lower‑rated segments.

Developed Market Bonds Face Headwinds From Strong U.S. Dollar

Developed market bonds generally recorded negative results in U.S. dollar terms as a strengthening dollar weighed on returns of most bonds denominated in local currencies. Yields of high‑quality sovereign debt generally declined, and 10‑year German and Japanese government bond yields finished the period in negative territory. As a result of slowing global growth and low inflation, several major developed market central banks, including the European Central Bank (ECB), cut rates. The ECB reduced its benchmark rate from ‑0.4% to ‑0.5% at its September meeting and also relaunched its quantitative easing program, saying that it would purchase 20 billion euros of securities every month beginning November 1. 

Emerging Markets: Argentina Roiled by Surprising Election Result

Emerging markets bonds continued to see strong demand as investors sought out higher-yielding securities. Argentina dominated headlines during the period after a surprisingly weak performance by market‑friendly incumbent Mauricio Macri in the presidential primary in August. The strong showing by populist challenger Alberto Fernández led to a broad sell‑off across the country’s equity, bond, and currency markets, with the peso losing more than a quarter of its value versus the U.S. dollar. Macri imposed capital controls to prop up the collapsing peso and retain shrinking foreign currency reserves. Meanwhile, a slew of emerging markets central banks—including Brazil, Indonesia, and Russia—cut lending rates to address global growth concerns. 

Outlook: Dollar Resilient as U.S. Economy Remains Relatively Strong

The U.S. dollar has been resilient this year despite the slowing U.S. economy. Quentin Fitzsimmons, a T. Rowe Price fixed income portfolio manager, says that this is because the strength of the U.S. economy relative to other countries influences the currency more than U.S. growth per se—and in 2019, European growth has disappointed more than U.S. growth. Most notably, in Germany—Europe’s largest economy—the manufacturing sector is suffering a recession as trade tensions weigh on export demand. According to Fitzsimmons, it is difficult to see how the dollar can significantly weaken against the euro unless the differential between the two major economies reverses.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

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 as of the date written 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.

GLOBAL CAPITAL MARKETS ENVIRONMENT

Stocks in the U.S. were narrowly mixed in a volatile third quarter. Monetary policy expectations were a major driver of market sentiment, as the Federal Reserve reduced short‑term interest rates twice and as other central banks around the world took measures to stimulate economic growth. Continued U.S.‑China trade tensions and concerns about escalation weighed periodically on world markets, especially in August. However, the quarter ended with optimism that the resumption of trade negotiations in October would lead to some tangible progress toward a trade deal. The U.S. equity market seemed largely unaffected by the late‑September opening of a House of Representatives impeachment inquiry regarding President Donald Trump’s alleged pressuring of Ukraine’s leader to investigate former Vice President Joe Biden and his son.

Large‑cap shares outperformed mid‑ and small‑caps. The S&P 500 Index returned 1.70% versus ‑0.09% for the S&P MidCap 400 Index and ‑2.40% for the small‑cap Russell 2000 Index. As measured by various Russell indexes, value stocks outperformed growth in mid‑ and small‑caps, while growth stocks narrowly surpassed value in large‑caps. In the latter part of the quarter, small‑cap and value stocks—which have significantly underperformed large‑cap and growth stocks, respectively, thus far in 2019—rallied sharply and reduced the magnitude of their year‑to‑date underperformance.

In the large‑cap universe, as measured by the S&P 500, sector performance was widely mixed. Higher‑yielding stocks in the utilities and real estate sectors performed best as longer‑term Treasury yields declined during the quarter. Shares in the defensive consumer staples sector also posted strong returns. The industrials and business services, materials, and consumer discretionary sectors were mostly flat and underperformed the broad market. Health care stocks declined more significantly, but energy shares fared worst amid slowing world growth. Although oil prices spiked following a September 14 drone and missile attack against certain oil facilities in Saudi Arabia, the price spike was short‑lived, as the kingdom worked quickly to restore the temporary drop in production.

U.S. Stock Returns
  S&P 500 Index S&P MidCap 400 Index Russell 2000 Index
3Q 2019 1.70% -0.09% -2.40%
Year-to-Date 20.55 17.87 14.18

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Standard & Poor’s, LSE Group. See Additional Disclosures.

Domestic investment‑grade bonds produced strong third‑quarter returns: The Bloomberg Barclays U.S. Aggregate Bond Index returned 2.27%. During the quarter, the Fed reduced short‑term interest rates by 25 basis points (0.25%) at the end of July and in mid‑September. At the end of the quarter, the fed funds target rate was in the 1.75%–2.00% range. Treasury interest rates fell across all maturities, but longer‑term rates generally fell more than shorter‑term yields, and the Treasury yield curve was partially inverted at times during the quarter. Historically, when short‑term interest rates are higher than long‑term rates, it has often foreshadowed a recession.

U.S. Bond Returns
  Bloomberg Barclays U.S. Aggregate Bond Index Bloomberg Barclays Municipal Bond Index JPMorgan Global High Yield Index
3Q 2019  2.27% 1.58% 1.09%
Year-to-Date 8.52 6.75 11.27

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

In the investment‑grade bond universe, long‑term Treasuries were the best performers, with the 10‑year Treasury yield dipping below 1.50% in late August to three‑year lows. However, U.S. government bond gains were trimmed by a rebound in yields in September. Corporate bonds also posted good returns and outperformed the broad taxable bond market. Mortgage‑backed securities lagged with milder gains, as falling long‑term rates led to increased mortgage prepayments and refinancing activity. Asset‑backed securities also trailed with slight gains. Municipal bonds produced positive returns but underperformed taxable bonds, as muni yields did not fall as much as Treasury yields. High yield bonds posted decent returns but underperformed investment‑grade issues.

Stocks in developed non‑U.S. equity markets declined and underperformed U.S. large‑cap shares; returns to U.S. investors were hurt by a stronger dollar versus other currencies. The MSCI EAFE Index, which measures the performance of stocks in Europe, Australasia, and the Far East, returned ‑1.00%. Developed European stock markets were mixed, led by Belgium, whose market rose roughly 3.5%. Shares in Germany fell 4%, as poor manufacturing data suggested that Europe’s largest economy was slipping into recession. UK shares declined about 2.5% in dollar terms, as the pound fell 3% versus the greenback amid Brexit uncertainty. Boris Johnson became the new prime minister in the latter part of July, but Johnson’s attempt to suspend Parliament for several weeks prior to the UK’s expected October 31 departure from the European Union—apparently intended to hinder lawmakers from stopping Brexit—was deemed unlawful by the UK’s supreme court.

Most developed Asian markets fell, especially Hong Kong, where shares plunged 12%—even though the city’s chief executive withdrew a controversial extradition bill in early September—as demonstrators continued to demand other changes from the government. Despite disappointing economic data, Japanese shares rose slightly more than 3% in dollar terms. Data released in September showed that Japanese exports have declined for nine consecutive months, thanks in part to weakness in the global economy and the prolonged U.S.‑China trade dispute. Near the end of the quarter, Japan signed a limited, tariff‑reducing trade deal with the U.S. that takes effect at the beginning of 2020. The two countries are expected to begin working on a wider‑reaching trade agreement later next year.

Non-U.S. Stock Returns
  MSCI EAFE Index MSCI Emerging Markets Index
3Q 2019 -1.00%
-4.11%
Year-to-Date 13.35 6.22

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; MSCI. See Additional Disclosures.

Stocks in emerging equity markets fared worse than stocks in developed markets, as currencies in many developing countries weakened versus the U.S. dollar in response to slowing economic growth, interest rate cuts, and risk aversion. The MSCI Emerging Markets Index returned ‑4.11%. In Asia, most emerging markets declined, but shares in Taiwan bucked the negative trend with a gain of about 6%. Indian shares fell 5%, even though the central bank reduced interest rates in August and the government announced in September corporate tax rate reductions to boost growth. In emerging Europe, central European markets sagged, especially Poland, where stocks fell about 12%. Russian shares slipped about 1%, whereas Turkish shares soared close to 12% in U.S. dollar terms. Turkish stocks benefited from declining inflation and the central bank’s decision to slash its key interest rate from 24% to 16.5% in two steps during the quarter.

Latin American markets were broadly negative. In Argentina, shares plunged about 47% in U.S. dollar terms and the peso plummeted as presidential candidate Alberto Fernandez soundly defeated incumbent President Mauricio Macri in the primary round of the country’s presidential election in August. Investors are fearful that a Fernandez victory later this year would mean a return to a Peronist government characterized by populist policies and debt defaults. Brazilian stocks also struggled during the quarter and fell about 4.5% in dollar terms while the real weakened, even though pension reform legislation moved closer to becoming law.

Non-U.S. Bond Returns
  Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index JPMorgan Emerging Markets Bond Index Global Diversified  JPMorgan GBI-EM Global Diversified Index
3Q 2019 -0.58% 1.50% -0.79%
Year-to-Date 4.38 12.99 7.86

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of September 30, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Bonds in developed non‑U.S. countries produced modest negative returns in U.S. dollar terms. Longer‑term interest rates in many countries declined, which lifted bond prices, but major currencies fell versus the dollar, reducing returns to U.S. investors. In the UK, the 10‑year gilt yield dropped from 0.83% to 0.49% amid Brexit uncertainty. In the eurozone, the benchmark German 10‑year yield fell deeper into negative territory, from ‑0.33% to ‑0.57%. In September, the European Central Bank (ECB) reduced its key short‑term interest rate from ‑0.4% to ‑0.5%. The ECB also relaunched its quantitative easing program, saying it would purchase EUR 20 billion of securities every month beginning November 1. In Japan, where the central bank kept short‑term interest rates at ‑0.1% and continued targeting a 10‑year government bond yield of about 0%, the 10‑year government bond yield slipped from ‑0.16% to ‑0.21%.

Emerging markets bonds were mixed. U.S. dollar‑denominated bonds posted positive returns, whereas local currency bonds in developing markets declined amid broad dollar strength. Most developing market currencies fell during the quarter, but the Turkish lira rose more than 2% versus the dollar.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. 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 or data 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.

MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

S&P Indices are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and have 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”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Indices.

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 as of the date written 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.

Emerging markets stocks fell in the third quarter as signs of flagging global growth and the intensifying U.S.‑China trade battle curbed investors’ risk appetite. A steady stream of below‑forecast economic indicators in China, falling prices for key commodities, and an inversion in a closely watched part of the U.S. Treasury yield curve for the first time since 2007 added to evidence of a global growth slowdown. Local currency weakness contributed to declines in emerging markets stocks as the U.S. dollar gained against most developed and emerging markets currencies. After retreating in July and August, the MSCI Emerging Markets Index rose in September as central banks worldwide lowered their interest rates and implemented other stimulus measures to boost demand. However, September’s advance still failed to push the index into positive territory for the quarter. Ten sectors in the MSCI Emerging Markets Index fell, led by the materials sector. The information technology sector was the sole advancer. 

International Indexes
     Total Returns

MSCI Index

    

3Q 2019

Year-to-Date

Emerging Markets (EM)

 

-4.11%

6.22%

EM Asia

 

-3.27 6.28

EM Europe, Middle East, and Africa (EMEA)

 

-6.80

5.68

EM Latin America

 

-5.57

6.59

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars as of September 30, 2019.
This table is shown for illustrative purposes only and does not represent the performance of any specific security. Investors cannot invest directly in an index.
Source: MSCI. See Additional Disclosures.

Chinese Stocks Decline as U.S. Tariffs Weigh on Economy; Southeast Asian Stocks Retreat

  • U.S. dollar‑denominated Chinese stocks and yuan‑denominated A shares declined as the U.S. and China slapped additional tariffs on each other’s goods and data reflected the trade war’s growing toll on China’s economy. China said in July that its gross domestic product (GDP) grew 6.2% in the second quarter from a year ago, marking the country’s weakest quarterly growth on record.
  • Indian stocks fell 5%. India reported in August that its GDP grew a worse‑than‑expected 5.0% in the June quarter from a year ago, its fifth straight quarter of cooling growth and weakest economic expansion since 2013. The weak GDP data boosted expectations that India’s central bank, which cut its benchmark rate by an unconventional 35 basis points in early August, would cut rates further this year.
  • Southeast Asian stocks retreated as trade tensions darkened the outlook for the region’s export‑driven economies. Indonesia’s central bank cut its benchmark interest rate by a quarter point for three straight months, while the Philippines’ central bank cut its key rate twice during the quarter. Malaysia was the only country in the region to leave its rate unchanged over the period, but its central bank said in September that its 2019 outlook was “subject to further downside risks from worsening trade tensions.” 

Brazilian Stocks Fall on Argentinian Default Fears; Andean Stocks Weaken as Commodity Outlook Darkens

  • Brazilian stocks fell nearly 5%, weighed by a currency sell‑off in August spurred by default fears in neighboring Argentina. Brazil’s central bank cut its benchmark interest rate twice over the quarter by 50 basis points to a record low and signaled that further easing was on the horizon as inflation remained well below the official target.
  • Mexican stocks declined. Mexico’s central bank cut its key rate by 25 basis points for the second straight month in September and said the risks facing the economy remained biased toward slower‑than‑forecast growth after the country averted a recession in the year’s first half. Mexico’s economy is expected to expand just 0.5% this year, the least in a decade, according to Bloomberg.
  • Andean stocks slumped, led by Peru’s roughly 9% drop, as weakening global growth signals weighed on the outlook for the region’s commodity‑driven economies. In September, Chile’s central bank reduced its key rate by 50 basis points to a nine‑year low of 2.0% and cut its 2019 growth forecast for the second time since June, reflecting the U.S.‑China trade dispute’s growing toll on the copper‑driven economy. Peru’s central bank cut its benchmark rate in August, while Colombia left its key rate unchanged during the quarter. 

South African Stocks Fall as Eskom Woes Hurt Outlook; Turkish Stocks Rally on Outsized Rate Cuts

  • South African stocks slumped more than 12% as the financial troubles of the country’s cash‑strapped utility Eskom Holdings weighed on the fiscal outlook and currency, which shed 7% against the dollar. South Africa’s economy entered the 70th month of a weakening cycle in September, according to the central bank, which cut its benchmark rate in July.
  • Russian stocks declined. Russia’s central bank cut its benchmark rate by 25 basis points twice over the quarter, and its governor said in September it was “probable” that policymakers would reduce the rate again at an upcoming meeting. The central bank also lowered its economic growth forecasts for 2019 to 2021 due to a worse‑than‑expected global growth slowdown arising from trade tensions.
  • Turkish stocks rallied roughly 12% after its central bank delivered two larger‑than‑expected rate cuts in July and September. The latest cut came weeks after Turkey reported that its economy grew a surprisingly strong 1.2% in the second quarter from the first quarter, when it expanded a revised 1.6%, defying expectations of a full‑year recession. However, the International Monetary Fund called Turkey’s easing cycle “too aggressive” and said that the country’s medium‑term outlook would likely “remain subdued” due to balance sheet strains. 

Solid Fundamentals in Emerging Markets Offset Near‑Term Risks

We are optimistic about the long‑term outlook for emerging markets. Most developing countries have smaller current account deficits, larger foreign exchange reserves, and more flexible currencies than they did in previous decades, reducing the risk of a financial crisis. Compared with developed markets, most emerging markets have more attractive demographics and a stronger tailwind from rising consumption. Corporate earnings in emerging markets have recovered after years of disappointing performance, and valuations for many companies are attractive compared with their developed markets peers. Rising trade tensions and slowing global economic growth represent the most pressing near‑term risks. However, we believe that careful stock selection based on intensive research remains the key driver of long‑term performance as individual emerging markets countries and companies continue to show wide dispersion in their returns. 

Additional Disclosures
MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

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 as of the date written 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.

Tax‑free municipal bonds produced strong, positive returns in the third quarter of 2019 as the asset class benefited from record demand and a rally in Treasuries. As measured by the Bloomberg Barclays Municipal Bond Index, the tax‑exempt market returned 1.58%, underperforming the Bloomberg Barclays U.S. Aggregate Bond Index, which returned 2.27%. High yield municipal bonds outperformed both investment‑grade munis and investment‑grade taxable bonds for the quarter.

Economy And Interest Rates

Amid growing concerns about a global economic slowdown, the Federal Reserve cut its benchmark short‑term lending rate twice during the quarter, ultimately lowering the federal funds rate to a range of 1.75% to 2.00%. The yield of the 30‑year Treasury bond hit a record low in August, and the benchmark 10‑year Treasury note’s yield reached its lowest level since 2016. (Bond yields and prices move in opposite directions.)

The rate cuts were widely expected, but some investors had hoped for clearer messaging from policymakers. After the September meeting, Fed Chair Jerome Powell provided little guidance about the central bank’s next move, but based on futures prices at quarter‑end, the market was expecting another quarter‑point cut by December.

The shape of the Treasury yield curve was closely watched by investors during the period. In August, the two‑year/10‑year portion of the curve briefly inverted for the first time since 2007, and the three‑month/10‑year segment remained inverted for the entire three‑month period. An inversion occurs when shorter‑maturity securities offer higher yields than longer‑maturity bonds—a measure closely watched by investors as a predictor of future recessions.

Intermediate‑ and longer‑term municipal yields followed Treasury yields downward, albeit to a lesser extent. The municipal yield curve flattened as long‑term yields declined to record lows during the quarter while short‑term yields were little changed. At the end of the quarter, high‑quality 30‑year muni yields were lower than the 30‑year Treasury yield. Nonetheless, municipals still offer relative value for many fixed income investors on an after‑tax basis.

As an illustration of their relative attractiveness, on September 30, 2019, the 2.01% yield offered by a 30‑year tax‑free general obligation (GO) bond rated AAA was about 95% of the 2.12% pretax yield offered by a 30‑year Treasury bond. Including the 3.8% net investment income tax that took effect in 2013 as part of the Affordable Care Act (ACA), the top marginal federal tax rate (after the 2017 tax reform legislation) stood at 40.8%. An investor in this tax bracket would need to invest in a taxable bond of similar credit quality and maturity yielding about 3.40% to receive the same after‑tax income as that generated by the municipal bond. (To calculate a municipal bond’s taxable‑equivalent yield, divide the yield by the quantity of 1.00 minus your federal tax bracket expressed as a decimal—in this case, 1.00 - 0.408, or 0.592.)

Municipal Market News

Strong investor demand continued to support the tax‑exempt market. The consecutive streak of positive weekly flows into muni bond funds advanced to 38 weeks by the end of September, bringing year‑to‑date net inflows to USD 68.4 billion according to Lipper data. The favorable supply and demand conditions that have buoyed municipals all year endured, yet technical imbalances ebbed during the quarter as supply increased.

Municipal bond issuance for the period was approximately USD 103.2 billion according to The Bond Buyer, a relatively sizable total since the enactment of the Tax Cuts and Jobs Act in December 2017. The surge in supply represented an increase of 17.8% from the same period in 2018 and included a spate of taxable deals as issuers sought to take advantage of historically low interest rates.

Bonds from several high‑profile, challenged issuers outperformed the broader muni index. Illinois bonds rallied after a judge dismissed a lawsuit that sought to invalidate USD 14 billion of the state’s GO debt, and New Jersey bonds posted solid returns during the third quarter following the enactment of a state spending plan at the close of the prior quarter.

Despite a volatile political backdrop, high yield Puerto Rico bonds produced strong returns, notably outpacing the broader high yield index. In late‑September, the commonwealth moved closer to an exit from bankruptcy after its Financial Oversight and Management Board filed a proposed plan that, if approved in U.S. District Court, would restructure the central government’s GO debt and reduce pension liabilities.

Although challenged issuers continue to garner headlines, fundamentals for the municipal asset class remain sound overall. Most issuers in the USD 3.8 trillion municipal bond market have been fiscally responsible, and over 60% of the market is AAA or AA rated, as represented by the Bloomberg Barclays Municipal Bond Index. However, we hold longer‑term concerns about unfunded pension and other post‑employment benefit liabilities, which have become more conspicuous and are adding pressure to budgets in some jurisdictions. To this end, we continue to favor bonds backed by a dedicated revenue stream, particularly in the higher‑yielding health care and transportation sectors, over GOs as we consider revenue bonds to be largely insulated from retirement funding challenges.

All major investment‑grade segments of the municipal market recorded positive returns in the third quarter. Revenue‑backed bonds outperformed GO debt, while prerefunded bonds lagged the broad municipal market by a wide margin. Among revenue bonds, the health care subsector led performance, followed by leasing and education, while the resource recovery subsector lagged the index. High yield tobacco debt rewarded investors with larger risk appetites, generating solid returns for a third consecutive quarter to outperform investment‑grade and noninvestment‑grade municipals. Within the investment‑grade universe, lower‑rated bonds fared best, and longer‑maturity issues easily outpaced their short‑ and intermediate‑term counterparts.

OUTLOOK

Despite some high‑profile credit challenges, we believe that municipal debt, overall, is a high‑quality market that offers good opportunities for long‑term investors seeking tax‑free income. The Tax Cuts and Jobs Act has altered issuance patterns and the economics of owning tax‑free securities for some buyers, yet fundamentals for the asset class have stayed generally sound.

Given uncertainties about the economic outlook and the Fed’s pledge to “act as appropriate to sustain the expansion,” muni and Treasury yields may remain low in the coming months. The same global economic uncertainties, coupled with heightened geopolitical tensions, could support demand for safe‑haven assets such as municipal bonds.

Ultimately, we believe T. Rowe Price’s independent credit research is our greatest strength and will remain an asset for our investors as we navigate the current market environment. As always, we focus on finding attractively valued bonds issued by municipalities with good long‑term fundamentals—an investment strategy that we believe will continue to serve our investors well.

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 as of the date written 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.

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