August 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 July 2024
- Global growth showing increasing signs of cooling along with easing inflationary pressures.
- Recent data across labor markets, consumer and businesses pointing toward moderating U.S. growth. European growth supported by services, while manufacturing lags. Japanese growth expected to rebound from earlier in the year contraction. China extends stimulus measures to support housing and the consumer to stabilize growth.
- Growing concerns Fed may be behind on rate cutting amid more evidence of slowing growth. The European Central Bank (ECB) maintains dovish stance, with further cuts expected. Bank of Japan (BoJ) rattles markets with surprise rate hike, despite soft economic growth.
- Key risks to global markets include a steeper decline in growth, central bank policy missteps, election calendar, geopolitical tensions, and trajectory of Chinese growth.
Portfolio Positioning
As of 31 July 2024
- Global growth showing increasing signs of cooling along with easing inflationary pressures.
- Recent data across labor markets, consumer and businesses pointing toward moderating U.S. growth. European growth supported by services, while manufacturing lags. Japanese growth expected to rebound from earlier in the year contraction. China extends stimulus measures to support housing and the consumer to stabilize growth.
- Growing concerns Fed may be behind on rate cutting amid more evidence of slowing growth. The European Central Bank (ECB) maintains dovish stance, with further cuts expected. Bank of Japan (BoJ) rattles markets with surprise rate hike, despite soft economic growth.
- Key risks to global markets include a steeper decline in growth, central bank policy missteps, election calendar, geopolitical tensions, and trajectory of Chinese growth.
Market Themes
As of 31 July 2024
You're Killing Me, Smalls
Going into the recent Fed meeting, anticipation for them signaling that they were nearing the start of rate cuts led small-caps to outperform large by 10% for the month. Unfortunately for those small-cap investors, who have long been waiting for a recovery in a space held captive by higher- for-longer rates, those gains were quickly killed. The next day’s weak jobs report and untimely move by the BoJ reversed the market narrative around impending rate cuts being supportive for small-caps to now being too late to help an already weakening U.S. economy. The worse-than- expected jobs number follows other recent data suggesting weakness in manufacturing and consumer finances. The view that small-caps’ vulnerability to higher interest rates would now be allayed amid lower rates has been overwhelmed by concerns about their economic sensitivity, which the market now seems to be prioritizing. With the prospects of a soft landing now in question, it’s less likely that interest rate cuts alone will be sufficient to fuel small-cap outperformance until we see clear evidence that growth is going to be stabilized.
Small-Caps Crash into Growth Fears1
As of 7 August 2024
Past performance is not a reliable indicator of future performance.
Source: Bloomberg Finance L.P.
1Small-Caps are represented by the Russell 2000 Index. Please see Additional Disclosures for more information about this Russell sourcing.
2Japanese Equities are represented by the Nikkei 225 Index.
Getting Carried Away
The unfortunate timing of the BoJ’s surprise interest rate hike last week colliding with the Fed’s decision to delay the start of cutting rates the day before disappointing U.S. labor market data was released sent global risk assets plummeting. Japanese equities were among the hardest hit after having been the darlings of the developed markets since last year on improving investor sentiment and reflation hopes. The sharp move lower in Japanese equities was exacerbated by the dramatic move higher in the yen as investors scrambled to get out of carry trades where they were short the lower yielding yen and long other higher yielding currencies. The yen carry trade has been a long time favorite and crowded trade where significant leverage can be deployed, making today’s unwind concerning as investors could be taking substantial losses as they are forced to buy back yen at much higher levels. This unfortunately comes at a time when the market narrative for U.S. growth has changed just as quickly with fears the Fed may be behind the curve, and likely has made the Fed and BoJ’s jobs a lot harder than they already were.
Carry Unwind hits Japanese Equities2
As of 31 July 2024
Regional Backdrop
As of 31 July 2024
| Views | Positives | Negatives | |
|---|---|---|---|
| United States | N |
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| Canada | N |
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| Europe | U |
|
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| United Kingdom | N |
|
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| Japan | O |
|
|
| Australia | U |
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| Emerging Markets | O |
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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 July 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 July 2024
1U.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.
Important Information
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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 written 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.
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August 2024 / EQUITY
