Global Asset Allocation Viewpoints

Outlook

• We have a more cautious view as broadly resilient global growth and receding inflation trends could be at risk to increased policy uncertainty, particularly around trade threats.
• U.S. growth exceptionalism leaves it better positioned should trade disputes escalate, with other major economies, particularly Europe and China, more exposed with growth already tepid.
• Central bank divergence could widen on impacts of trade, with the Fed in a position to wait on impacts, while other central banks, including Europe Central Bank (ECB) and Bank of Canada (BoC), advance easing as risk tilts toward slower growth.
• Key risks to global markets include elevated threat of trade wars impacting growth and reaccelerating inflation, central bank missteps, and geopolitical tensions.

Themes Driving Positioning

Big Bet!

What do digital advertising, online retail, electric vehicles, and software have in common? Seemingly not a lot, other than a combined $20 trillion. The “Mag 7,” as they are known, are a heterogenous group of companies that have dominated global equity markets. Their combined market cap is now multiple times larger than other parts of the market and any other country outside the U.S. While eye catching, their profitability has also been unprecedented in helping justify valuations. However, the recent news around Deepseek, the Chinese AI startup, highlighted a common thread across this otherwise disparate group, billions in capex spending. Their enormous bet on AI technology to sustain their dominance will be increasingly scrutinized by investors looking for assurance these big bets pay off. Against this backdrop, we favor better priced value stocks that should benefit from a broadening market and improving earnings.  
 

Deep Pockets

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Performance data quoted represents past performance which is not a guarantee or a reliable indicator of future results.  
Data as of 31 January 2025 unless otherwise noted.  
Sources: T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved. Standard & Poor’s and MacroBond. Please see Additional Disclosures for more information about this sourcing information.  
 

Deal or No Deal?

As promised, President Trump acted swiftly on using tariffs as a negotiating tool to draw counterparties to the table. The tariffs have been introduced largely on the premise of creating fairer trade policies and gaining border security protections. For the most part, the more aggressive stance has worked with trade partners acting quickly to make a deal,or at least delay tariffs. The stakes are high for those targeted whose economies rely more heavily on trade. And while the U.S. comes at these on a stronger economic footing and less trade vulnerability, it will not be immune to potential consequence if this turns into a prolonged trade war, particularly with inflation at higher levels this time around. With the increased uncertainty, we moderated our equity exposure as risk is increasingly tilted to the downside at current valuations.  
 

U.S. Less Vulnerable to Trade

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Performance data quoted represents past performance which is not a guarantee or a reliable indicator of future results.  
Data as of 31 January 2025 unless otherwise noted.  
Sources: T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved. Standard & Poor’s and MacroBond. Please see Additional Disclosures for more information about this sourcing information.
 

ADDITIONAL DISCLOSURES

Any specific securities identified and described are for informational purposes only and do not represent recommendations.

* The Magnificent 7 (”Mag 7”) is Apple, Alphabet, Amazon, Meta, Microsoft, NVIDIA, and Tesla.

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