June 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 May 2024
- Global growth outlook remains positive against a backdrop of gradually easing inflationary pressures across most economies.
- While resilient, recent evidence suggests some cooling in U.S. growth. European growth stabilizing helped by services, with manufacturing still a laggard. Japanese growth remains stagnant, while Chinese growth shows signs of improvement supported by recent stimulus measures.
- U.S. Fed rate cuts look to be still in play later this year with recent signs of moderating growth and inflation. The European Central Bank appears likely to lead on cuts amongst major central banks. After hiking in March, Bank of Japan (BoJ) is still expected to take additional steps toward tightening.
- Key risks to global markets include a steeper decline in growth, stubborn inflation, central bank policy divergence, election calendar, geopolitical tensions, and trajectory of Chinese growth.
Portfolio Positioning
As of 31 May 2024
- We remain modestly overweight equities, supported by a still resilient economic backdrop, positive earnings trends, and reasonable valuations beyond heavily concentrated areas of the market.
- We maintain an overweight to cash relative to bonds. Cash provides liquidity and attractive yields with Fed rate cuts still not expected until later in the year.
- Within equities, we are balanced between U.S. and global ex-U.S. markets, with a preference toward areas with more attractive valuations and potential for cyclical tailwinds including value in the US and globally as well as global ex-U.S. small-cap stocks, where we recently moved to an overweight.
- 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 31 May 2024
Home Improvement
In its latest measures to stabilize the economy, Chinese policy makers took further steps targeted at improving sentiment within its challenged housing sector. These measures included reducing downpayment requirements, lowering the floor on mortgage rates, and providing low-cost funding to help state-owned enterprises buy unsold homes. Hopes are for these measures to restore some confidence in the housing market, which has continued to see price declines amid outsized supply. On a positive note, economic growth did surprise to the upside in the first quarter, expanding by 5.3%. However, much of the growth was driven by exports and infrastructure spending, while hopes for a rebound in consumption and business spending continue to be held back by housing market woes. While recent measures to expand their economy into higher value-add sectors, including electronic vehicles (EVs) and semiconductors, will help diversify their economy in the long-run, the property sector will likely need a much larger renovation before it turns around.
Hoping to Build Back Confidence in China’s Housing Market1
As of 30 April 2024
1Source: Bloomberg Finance L.P. Chart represents year over year changes in commercial residential property prices, based on the average of the price change in each city in the National Bureau of Statistics 70 City Index.
Big Spenders
While the Fed’s battle with inflation has been the leading driver in the direction of yields, the move higher over recent weeks was attributed to weaker treasury auction demand as buyers became wary of even more supply ahead. With the U.S. election looming in the back half of the year, few are expecting either political party to significantly rein in spending or address U.S. debt, now above 120% of GDP. The unbridled spending has been flagged by the ratings agencies and is causing investors, particularly foreign investors, to demand higher yields to compensate for the risk of more supply. While some argue the big spending in Washington is growth supportive and nothing to worry about, its spillover effects on the private sector can crowd out demand and raise everyone’s cost of borrowing. So for those hoping for lower rates ahead as the Fed finally reins in inflation, it could be the big spenders in Washington that end up keeping rates higher-for-much-longer.
Spend Now, Pay Later? 2
As of 1 October 2023
2Source: St. Louis Fed. Most recent data available.
Regional Backdrop
As of 31 May 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 31 May 2024
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.
Portfolio Implementation
As of 31 May 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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June 2024 / GLIDE PATH DESIGN
