BY PR Newswire | ECONOMIC | 11/15/22 12:00 PM EST


In a rare occurrence, stock and bond markets have collapsed simultaneously this year, leaving investors with few safe havens. Historically, after stock market sell-offs of this year's magnitude, equity returns have been quite robust looking ahead a year or more

BALTIMORE, Nov. 15, 2022 /PRNewswire/ --?


T. Rowe Price held its 40th?annual global market outlook press briefing today, with the firm's experts addressing the outlook for the global economy, equities, fixed income, and asset allocation. Chief U.S. economist Blerina Uruci emphasized the challenge for central banks in navigating the twin threats of rising inflation and a slowing global economy. Chief Investment Officer and Portfolio Manager John Linehan expects more volatility next year as interest rates and inflation remain high and the severity of any recession emerges as a key driver of market performance.

Samy Muaddi, Portfolio Manager of the Emerging Market Debt Strategy, said that while the macroeconomic backdrop is dim with lingering liquidity concerns in the short term, strong valuations not seen in a decade are supportive of a contrarian view in some sectors of fixed income. Sebastien Page, Chief Investment Officer and Head of Global Multi-Asset, the division that manages about 30 percent of T. Rowe Price's $1.23 trillion in assets under management, said the team is defensively positioned given sticky inflation, a potential economic growth shock, and liquidity withdrawals by some market participants. However, the gloomy consensus is being reflected in some asset classes, presenting opportunities for investors who stay focused on the long term.

Key Outlook Observations

Global Economy

  • In 2022, for the first time in 20 years, global central banks are more focused on containing inflation than in maintaining or encouraging economic growth.
  • Monetary policy tightening has ramped up globally with 274 interest rate hikes announced since the beginning of the year compared with 117 hikes in last year and nine in 2020. Qualitative tightening will gather pace next year. The monetary policy cliff is daunting.
  • Central banks will remain resolute in containing inflation, but they tread a difficult line with the global economy slowing and possibly entering a recession.
  • The Fed is between a rock and hard place. Its key challenge is how to navigate a soft landing without appearing to be dovish on inflation.

Global Equities

  • Rising inflation and monetary tightening globally, coupled with higher bond yields, have been the key factors driving down equity markets, with most major indices near or at bear market levels.
  • After entering the year with valuations near 20-year highs, most major equity benchmarks are trading below their 20-year averages.
  • The market is likely to remain volatile until the virulence of inflation becomes clear. The severity of any recession will be a key driver of market performance next year.
  • Longer-term, interest rates and inflation are likely to remain higher than levels we have seen over the past decade as de-globalization, onshoring, and increasing geopolitical risks create structural changes in the global economy. The next decade of equity market leadership, following the last ten years of dominance by growth companies, is likely to be broader and may favor companies with shorter-duration cash flows, including value stocks.

Global Fixed Income

  • The challenging macroeconomic environment and fading monetary support is disconnected from strong credit fundamentals leading to high realized interest rate volatility and a decreased appetite for risk taking in global fixed income.
  • While U.S. rates remain biased to the upside in the near-term as the Fed fights sticky inflation, the subsequent negative impact on?economic growth should provide an attractive entry point to add duration.
  • Our investment teams are seeing opportunities not seen in ten years in many sectors, including historically attractive yields in securitized credit, global high yield, and emerging market debt. Liquidity conditions however are unlikely to improve near term.
  • Emerging market debt has experienced a historic level of differentiation between firmly anchored countries well positioned for the current environment and certain frontier markets that are navigating a period of debt distress.

Asset Allocation

  • Risks remain elevated moving into 2023 given sticky inflation, the possibility of recession with associated earnings deterioration, and liquidity withdrawals by some market participants. The T. Rowe Price multi-asset team has adopted a somewhat defensive stance, slightly underweighting stocks versus bonds.
  • However, we've examined 18 different sell-offs when the stock market was down 15% or more. Historically, if investors had leaned in and started adding to risk at that point, their returns a year forward would have been quite strong.
  • In equities, the team is slightly underweighting U.S. and European equities. It is overweighting emerging markets, Japan, international versus U.S. stocks, and U.S. small-capitalization stocks versus their large-cap counterparts.
  • In fixed income, the team is slightly underweight U.S. and other developed market investment grade bonds. The team favors emerging markets, floating rate loans, and global high yield.

Blerina Uruci, Chief U.S. Economist

"The economy in 2023 is shaping up as a tug of war between inflation and economic growth. Central banks remain resolute on containing inflation and I expect it will decline next year as global demand slows, inventories rise, and energy prices stabilize, at least in the short-term."

John Linehan, CFA, Chief Investment Officer and Portfolio Manager, U.S. Large Cap Equity Income Strategy

"The U.S. is entering its first real tightening cycle in twenty years and a recession seems inevitable. However, a recession caused by monetary policy is extremely difficult to predict and, in this case, the range of potential outcomes remains abnormally wide. After a decade led by growth stocks, market leadership over the next ten years is likely to be broader and include a tailwind for companies with shorter duration cash flows, including value stocks."

Samy Muaddi, CFA, Portfolio Manager, Emerging Market Debt Strategy

"As often happens in market crises, the macroeconomic cloud is overshadowing strong fundamentals across many parts of the fixed income universe. Our investment teams are seeing opportunities not seen in a decade in many sectors with historically attractive yields, including portions of securitized credit, global high yield, and emerging market debt."

Sebastien Page, CFA, Head of Global Multi-Asset and Chief Investment Officer

"There is an abundance of doom and gloom in global economies and financial markets, leading many investors to remain prudently defensive moving into 2023. However, the bad news is starting to seep into the pricing of some asset classes and select valuations are compelling. There is little sense in waiting for a market bottom, which are nearly impossible to predict. Our Asset Allocation committee is combining some defensive positions in cash (relative to our strategic weights in stocks and bonds), with selective risk-on tilts where valuations are compelling, including in actively managed small cap stocks and high yield bonds."

"I believe we are getting closer to a contrarian "buy risk" moment, but we're not quite there yet. An important risk on the horizon is that fixed income liquidity is deteriorating. If we get a liquidity shock, the key question will be whether the Fed can keep one foot on the brake and one on the accelerator and make it work."

About T. Rowe Price

Founded in 1937, Baltimore-based T. Rowe Price Group, Inc. (troweprice.com), is a global investment management organization with $1.28 trillion in assets under management as of October 31, 2022. The organization provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. The company also offers sophisticated investment planning and guidance tools. T. Rowe Price's disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental research.


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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.