July 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 30 June 2024
- Global growth remains broadly resilient with some signs of cooling along with easing inflationary pressures.
- Recent data across consumer, labor, and businesses point to a moderation in U.S. growth. European growth stable helped largely by services. Improving growth outlook in Japan, albeit still muted, while stimulus measures in China targeted at the housing market help underpin growth outlook.
- U.S. Fed remains patient as recent data suggests tight policy may finally be weighing on growth. The European Central Bank (ECB) has taken the lead on easing policy, with more cuts likely. Despite weaker recent growth, Bank of Japan is still expected to take additional steps toward tightening.
- Key risks to global markets include a steeper decline in growth, stubborn inflation, election calendar, central bank policy divergence, geopolitical tensions, and trajectory of Chinese growth.
Portfolio Positioning
As of 30 June 2024
- We remain modestly overweight equities, as valuations beyond narrow leadership remain reasonable and economic growth, while slowing, still supportive for earnings.
- We maintain an overweight to cash relative to bonds. Cash yields remain attractive with less aggressive expectations for Fed cuts and provides liquidity should market opportunities arise.
- Within fixed income, we added to US Treasury Inflation Protected Securities (TIPS) on attractive valuations and to hedge against sticky inflation.
- Within fixed income, we continue to favor higher-yielding sectors including high yield, floating rate loans, and emerging markets bonds as fundamentals remain broadly supportive.
Market Themes
As of 30 June 2024
Oh Snap!
While investors were already expecting the possibility for heightened volatility around a packed global election calendar, those risks have only been amplified with the recent snap elections in France and the U.K. Discontent with incumbent leaders has been a common theme leading to several opposition party wins, with economic, trade, and immigration policies and corruption also contributing to voter dissatisfaction. The uncertainty associated with these elections could aggravate an already fragile global economic environment on the cusp of finally reigning in inflation and skirting a more severe downturn. With the potential for abrupt changes in fiscal policies, trade, and tariffs on the horizon, markets could become increasingly volatile as they weigh the impacts. Some of this is already playing out across European markets, which appeared to be turning the corner economically just weeks before recent snap elections were announced. With more elections to come and the increasing uncertainty around the U.S. elections that are still months out, the uncertainty itself could become an increasing downside risk to growth and one leading to central bankers regretting not snapping at the opportunity when they had it..
Election Uncertainty Causing Market Jitters1
As of 30 June 2024
![Chart as discussed above](/institutional/ca/en/insights/articles/resources/global-asset-allocation-viewpoints/_jcr_content/root/main-content/article-main/default-content-fragment/par8/trp_image_copy.coreimg.png/1720729050543/gaav-market-themes-fig1.png)
Past performance is not a reliable indicator of future performance.
Source: Bloomberg Finance L.P.
1Global equities are represented by the MSCI ACWI index. French equities are represented by the MSCI France Index..
Up-tight
While other major central banks have taken the leap in cutting rates, including the ECB and Canada this past month, the Fed remains patient despite mounting evidence of slowing U.S. economic growth. With cracks in the data starting to form across the ever-resilient U.S. consumer, particularly among lower incomes, and the large pandemic savings buffer now depleted, consumer spending that had helped underpin inflation may finally be waning. The business sector, too, is starting to show cracks with recent declines in new orders and shipments. This weakness among consumers and businesses could quickly turn on the tight labor market, that itself has shown recent signs of cooling, as quit rates and job openings have fallen. And while the Fed’s preferred gauge of inflation, core personal consumption expenditures (PCE), remains above their 2% target, incoming data may soon become hard to ignore as it tilts the balance of risk away from sticky inflation and toward weaker growth. Let’s hope the Fed isn’t too “uptight” about getting it wrong on inflation for a second time and won’t end up being the party crashers for the economy..
Letting It Get Away?
As of 31 May 2024
![Chart as discussed above](/institutional/ca/en/insights/articles/resources/global-asset-allocation-viewpoints/_jcr_content/root/main-content/article-main/default-content-fragment/par10/trp_image_copy.coreimg.png/1720729049823/gaav-market-themes-fig2.png)
Regional Backdrop
As of 30 June 2024
Views | Positives | Negatives | |
---|---|---|---|
United States | N |
|
|
Canada | N |
|
|
Europe | U |
|
|
United Kingdom | N |
|
|
Japan | O |
|
|
Australia | U |
|
|
Emerging Markets | O |
|
|
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 30 June 2024
![Asset Allocation Committee Positioning table](/institutional/ca/en/insights/articles/resources/global-asset-allocation-viewpoints/_jcr_content/root/main-content/article-main/default-content-fragment/par14/trp_image_copy.coreimg.png/1720729050307/gaav-asset-allocation-committee-positioning.png)
1For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to thesecond asset class.
The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalizationasset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
Additional Disclosures:
Certain numbers in this report may not equal stated totals due to rounding.
Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2024 FactSet. All Rights Reserved.
Key risks - The following risks are materially relevant to the information highlighted in this material: Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk - in general, equities involve higher risks than bonds or money market instruments.
ESG and Sustainability risk - May result in a material negative impact on the value of an investment and performance of the portfolio.
Credit risk - a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk - changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk - the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk - emerging markets are less established than developed markets and, therefore, involve higher risks.
Foreign investing risk - investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates; differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk - when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk - real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small- and mid-cap risk - stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk - different investment styles typically go in and out of favour depending on market conditions and investor sentiment.
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.
Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.
© 2023 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
July 2024 / FIXED INCOME