asset allocation  |  may 15, 2020

Three Reasons for Optimism Despite Market Uncertainty

Despite alarming economic data, we believe that there are three reasons to be optimistic. While the timing for recovery may be uncertain, the pandemic appears to have stopped getting worse; tremendous stimulus measures are supporting markets; and pessimistic expectations allow room for positive surprises.


Sébastien Page

Head of Global Multi-Asset


Key Points

  • Recent economic data has been alarming, but we believe that there are three reasons for optimism, despite market uncertainty. 

  • Although economic recovery may be lengthy, the pandemic appears to have stopped getting worse, and a significant percentage of job losses seem temporary. 

  • Tremendous stimulus measures are supporting markets, and pessimistic expectations—given dire forecasts—allow room for positive surprises. 

View Transcript ▾

These are really difficult times to make asset allocation decisions. We’ve just had the worst data for unemployment claims in history, and it’s forecasted that this year we’ll lose more in terms of GDP than we did throughout the entire financial crisis of 2008 and 2009. So I wanted to put these numbers in context and offer some balance—three reasons to be optimistic. Because it’s difficult nowadays to be optimistic.

First, we will get through this. It’s going to take a long time. But we seem to have reached a point in the pandemic where things have stopped getting worse, and if you look at the jobless claims, at least 80% of them are already classified as temporary. And also a lot of them are in the service sector, and typically those jobs are easier to put back on line than for other sectors of the economy.

Second, we’ve had a tremendous amount of stimulus, representing about $10 trillion globally between monetary and fiscal measures. Authorities have learned from the 2008/2009 crisis. One of our portfolio managers in our multi-asset division put it this way, “You’re looking at some of the worst economic data ever against the biggest set of stimulus measures ever. And if you don’t like to fight the Fed, it’s hard to get bearish here.”

Third, it doesn’t feel like it because equity markets have rallied from the bottom, but expectations are actually quite low at the moment. There’s a lot of pessimism. Earnings forecasts are dropping like a stone. GDP forecasts are dire. Investor confidence, close to an all-time low. And there is a lot of cash on the sidelines if you look at the assets under management in money market funds, for example. So when expectations are that low, there is room for positive surprises that can sustain risk assets even though it doesn’t feel like it.

So what does it mean for investors, in particular those concerned with asset allocation decisions.

Now’s the time to remain diversified and invested for the long run. And for those who are fairly far from retirement, it means a healthy allocation to risk assets and stocks in particular.

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 May 2020 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.

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.



Next Steps

  • Get strategies and tips for today’s market conditions.

  • Contact a Financial Consultant at 1-800-401-1819.