September 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 August 2024
- Trends in recent data are more decisively pointing to slowing growth alongside easing inflation pressures, with a soft landing still within grasp as central banks pivot to easing.
- In the U.S., economic data showing signs of cooling, particularly in the labor market. European growth remains modest and bolstered by services, while manufacturing lags. Japanese growth rebounds from earlier in the year contraction supported by exports. Chinese growth remains stagnant, with policymakers remaining measured with stimulus support.
- Fed cut this September highly anticipated as focus shifts from inflation to the labor market. The European Central Bank looks to advance easing as inflation data provides support. Bank of Japan signals commitment to their divergent path of rates hikes, with a cautious eye on currency impacts.
- 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 August 2024
- While valuations are broadly extended, we remain modestly overweight equities that should benefit from easing monetary policy and still resilient economic growth albeit slowing.
- We maintain an overweight to cash relative to bonds. Cash yields should remain at attractive levels even as Fed embarks on easing as we expect a gradual path.
- Within equities, we remain overweight value, globally, based on more attractive relative valuations whereas narrowly led growth equities are extended and susceptible to weakness on earnings disappointment. Supportive global central bank easing should provide backdrop for broader market participation.
- 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 August 2024
What Lies Beneath?
U.S. consumer confidence rebounded in August on optimism about the resilience of the economy and easing inflation pressures. And while markets cheered the rosier outlook of the all-important U.S. consumer, a deeper dive into the survey data suggests there are growing concerns, particularly about declining labor market conditions. Employment data has turned decisively cooler recently, with the unemployment rate climbing and jobs becoming less abundant. With the survey data also showing consumers remaining very concerned about their personal finances, any further deterioration in jobs could lead to a quickening pullback in spending. This is particularly weighing on lower-income consumers facing higher prices and now turning more to credit cards as excess savings over covid has depleted. And while higher-income consumers have been buffered by rising 401k balances and elevated home prices, their propensity to consume could turn quickly as well if layoffs broaden. Let’s hope that rate cuts have been well timed to allow for a cooling of the labor market rather than too late and already facing the risk of a sinking U.S. consumer.
U.S. Unemployment Rate Has Been Ticking Up1
As of 31 August 2024
Past performance is not a reliable indicator of future performance.
Source: Bloomberg Finance L.P.
1U-3 U.S. Unemployment Rate total in labor force is seasonally adjusted.
2Assets are sourced from ICI Money Market Funds Assets.
Sidelined
Despite market expectations for an unwind of the huge pile of money market assets to provide a tailwind as it flows back to risk assets, the category has continued to garner flows, hitting an all-time high of $6.6 trillion in August. Whether it’s extended equity valuations, concerns over bond market volatility, or simply still attractive 5% yields keeping investors on the sidelines, they have seemed wary to jump back into risk assets. Unfortunately, for those investors parked in money markets awaiting an opportunity have missed out on a huge equity rally, with the S&P 500 returning over 20% over the past year. And for those more conservative investors that may have considered inching out into longer-maturity bonds, they too have missed out more recently on a major rally in yields. Perhaps the start of rate cuts on the horizon could entice some investors to come off the sideline, but with a gradual path priced in, it is unlikely to have a huge impact. And for those that not too long ago remember earning 0% in money markets, still getting over 4% could remain compelling for a while longer.
Money Market Assets Reaching New Highs2
As of 31 August 2024
Regional Backdrop
As of 31 August 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 August 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 August 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
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September 2024 / MARKETS & ECONOMY
