T. Rowe Price Investment Professionals Share Global Market Outlook for 2019
Experts are cautiously optimistic for the year ahead, but expecting markets to be choppy and headline driven
Nov 13, 2018, 11:00 ET
BALTIMORE, Nov. 13, 2018 /PRNewswire/ --
T. Rowe Price held its annual Global Market Outlook press briefing today in New York City. Several of the firm's experts shared their expectations for 2019 and reflected on key market drivers for 2018. Speakers at the press briefing included John Linehan, chief investment officer, Equity, and portfolio manager; Justin Thomson, chief investment officer, Equity, and portfolio manager; Andy McCormick, head of U.S. Taxable Bond and portfolio manager; David Giroux, chief investment officer, Equity and Multi-Asset, head of Investment Strategy, and portfolio manager; and Alan Levenson, chief U.S. economist.
KEY OUTLOOK OBSERVATIONS
- This year, the market ascended to all-time highs before the October correction, and growth stocks continued to outperform value stocks across market caps.
- Strong earnings growth and renewed confidence in the economy drove the market's rise.
- Concerns around a China tariff war and Fed tightening have been the catalysts for the most recent downturn.
- Given the recent economic expansion, near-term recession risk is low, but risks to the current bull market are increasing. There is reason for cautious optimism but the market likely will be choppy and headline driven.
- Valuations are a neutral factor. While they are stretched in some areas, they are not out of line with historical norms across the board.
- Emerging markets have underperformed developed markets by a wide margin this past year.
- Relative valuations favor emerging markets and the "Bear" thesis is largely discounted at current levels.
- Fundamentals are more sound today than in past periods of crisis.
- U.S. dollar strength is peaking, and spare oil capacity is tight at a time when investors are complacent.
Global Fixed Income
- Reduction in central bank asset purchases will likely be accompanied by increased volatility in risk assets.
- U.S. economic growth is still on solid footing, but the impact of fiscal and tax policy stimulus will likely wane throughout 2019.
- Expect the U.S. to move into a late-cycle period as the Fed continues to raise short rates.
- A low risk-adjusted return profile for risk assets is likely to lead to volatility for longer-term bonds and periodic flight-to-quality demand for U.S. Treasuries.
- Emerging markets bonds and bank loans should do well as the end of tightening cycle approaches.
Challenge and Opportunity of Secular Risk
- Secular risk, or the emergence of new disruptive forces in the economy, is growing, and the number of attractive industries and companies is shrinking.
- Thirty percent of companies in the S&P 500 are impacted by secular risk, up from 20 percent two years ago. Another 13 percent could be impacted in the next three years.
- Navigating secular risk is crucial to investing success and highlights the importance of long-term investing.
- Companies free of secular risk are likely to trade at higher valuations than they have in the past.
- The emergence of secular risk will be a challenge to passive investing over the next five to 10 years.
- Global growth is moderating into 2019; advanced economies are broadly slower as stimulus tailwinds abate and output gaps close.
- The picture is mixed in emerging market and developing economies, with slowing in China offset by acceleration elsewhere.
- Inflation is muted but tilting higher, and risks to growth outlook are skewed to the downside.
More information from the T. Rowe Price 2019 Global Market Outlook press briefing, including speaker biographies can be found here, and speakers' presentations can be found here.
John Linehan, chief investment officer, Equity, and portfolio manager:
"We are cautiously optimistic for the year ahead. Economic acceleration, high consumer and business confidence, strong earnings growth, the electoral cycle, and widespread innovation all favor a bull market in the near term. However, we will likely see a market tug of war, which should favor investment strategies that are opportunistic and focused on stock selection."
Justin Thomson, chief investment officer, Equity, and portfolio manager:
"Emerging markets underperformed this past year, and several themes support the case for a bear market. The rising dollar and rising rates are headwinds for emerging markets, and country-specific risks could trigger broader contagion. Additionally, trade tensions have the potential to derail Chinese and global growth. But we are on the lookout for factors that could be upside surprises in 2019, including innovation in China, rising profitability in Japan, and a possible Brexit resolution."
Andy McCormick, head of U.S. Taxable Bond and portfolio manager:
"Current market conditions show that after a lengthy period of coordinated easy global monetary policy, global liquidity has peaked. And despite generally positive economic conditions, pockets of volatility have begun to emerge. Looking forward, the U.S. economy appears to be moving toward late-cycle as short rates continue to rise and global monetary policy is increasingly divergent."
David Giroux, chief investment officer, Equity and Multi-Asset, head of Investment Strategy, and portfolio manager:
"Secular risk impacts roughly 30 percent of the market, which is a 10 percent increase from just two years ago. The implications of secular risk for markets and investors are significant. Traditional mean-reversion investing will likely be less successful than in the past, and value investors will face a difficult challenge as the universe becomes predominantly economically cyclical stocks and secularly challenged stocks."
Alan Levenson, chief U.S. economist:
"We expect global growth to slow a bit in 2019, but fiscal stimulus will still provide a tailwind. History suggests that we will see another 175 basis points of rate hikes, and Fed tightening cycles should lift the real Fed funds rate at least to potential real GDP growth. In terms of risk, we see that the yield curve is flattening, but this does not mean recession is imminent."
ABOUT T. ROWE PRICE
Founded in 1937, Baltimore-based T. Rowe Price Group, Inc., is a global investment management organization with $1.01 trillion in assets under management as of October 31, 20181. 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. For more information, visit troweprice.com or our Twitter, YouTube, LinkedIn, and Facebook sites.
For designated members of the press only.
T. Rowe Price Investment Services, Inc.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates.
T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are collectively and/or apart, trademarks of T. Rowe Price Group, Inc. © 2018 T. Rowe Price. All rights reserved.
1 The combined assets under management of the T. Rowe Price Associates, Inc. and its investment advisory affiliates.
SOURCE T. Rowe Price
Share this article