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
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
Regional Backdrop
As of 30 June 2024
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
1For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.
The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
Portfolio Implementation
As of 30 June 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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