Active Investing Appears Primed to Favor Shifting Market
Conditions and Identify Pockets of Opportunity for
Investors
BALTIMORE, June 20,
2024 /PRNewswire/ -- T. Rowe
Price, a global investment management firm and a leader in
retirement, released its outlook for global financial markets
for the remainder of 2024. Underpinning the outlook for the next
six months is the change in expectations for central bank policy.
Given pricing on interest rate futures, there will likely be far
fewer interest rate cuts from global central banks than seemed
likely at the start of the year. Equity and fixed income markets
are adjusting accordingly, noting the following key expectations
for the balance of the year:
- Broadening global growth in light of decreasing recession
risk
- Elevated potential for Fed surprises
- Risk of reaccelerating inflation, driven in part by sticky
services inflation
- Increased opportunities in equities, specifically in value and
potentially small-cap
- A reduced liquidity preference in favor of equities and
short-duration bonds
While there continues to be a place for both active and passive
management in investor's portfolios, this challenging market
environment, including higher rates, continued asset price
dispersion and more volatile markets, supports conditions for
active managers to outperform.
QUOTES
Nikolaj Schmidt, Chief
International Economist
"The global economic outlook consensus has markedly changed over
the last six months. While in late 2023 falling inflation supported
expectations of brisk rate cuts, today we foresee a broadening of
global growth, resilient inflation pressures, and limited easing
from central banks."
"In the U.S., the Fed is more likely to surprise with fewer
cuts rather than with more. We expect to see the Fed cutting 25
basis points (0.25%) at its December policy meeting, after the
November elections are out of the way, and possibly once in the
late summer. The outlook for Fed easing in 2025 is less clear, one
or two rate reductions seems realistic."
Ken Orchard, Head of
International Fixed Income
"While inflation is notoriously difficult to predict, it's clear
that it isn't going anywhere. Last year we saw a decrease in global
inflation due to goods disinflation; now services inflation is
driving a renewed upward pressure. This is sticky, and needs to
fall, but several factors would need to adjust, including wage
pressures, fiscal spending, and energy prices. In this type of
environment, investors may benefit from exposure to short duration
credit – such as loans and ABS – Asian government bonds, and
inflation protected bonds."
Peter Bates, Equity Portfolio
Manager, International Equities
"In U.S. equities, we see increased opportunity for companies
and sectors that have previously lagged. Performance within the
'Magnificent Seven' is beginning to diverge as of late May, and we
see this trend continuing as artificial intelligence (AI) continues
to play a larger role – as the benefits are unlikely to be evenly
enjoyed by each company. Additionally, we are seeing the
continuation of value stocks trading at a significant discount to
growth stocks. If the Fed only makes a few cuts or does not cut at
all, we believe the market conditions will be primed for stocks
that should benefit from higher rates and inflation to perform
better."
Tim Murray, Chief Capital
Markets Strategist, Multi‑Asset Division
"As fears over a recession have receded, it's likely the current
preference for liquidity will ease. The focus has shifted from
recession risk to inflation risk, and investors are moving out of
cash in favor of equities and short‑duration bonds. In the current
environment, energy stocks may offer best hedge against inflation.
Shorter‑term bonds also provide attractive yield levels and the
potential for price appreciation if yields move lower."
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