Positioning for Recovery Amid Uncertainty
KEY INSIGHTS
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The drivers of uncertainty are liquidity concerns, the spread of the virus, and the pandemic’s impact on global economies.
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We are gradually adding to equities and increasing our exposure to credit sectors.
The current crisis is an unprecedented twin “black swan” event
involving both a pandemic and a major shock in oil prices. The
key factors driving uncertainty in this environment are liquidity
concerns, the alarming spread rate of the contagion, and the
pandemic’s toll on global economies.
As panic selling across almost all assets accelerated, the
Federal Reserve acted swiftly to stabilize markets and restore
liquidity. However, some less liquid asset classes—those below
investment grade—continue to be stressed. Meanwhile, the
magnitude of the pandemic and its global economic impact
continue to unfold, with unemployment increasing dramatically
and a global recession looming.
In our multi‑asset portfolios, we are gradually adding to
equities. With attractive valuations and a favorable capital
markets backdrop, we are incrementally closing our U.S.
equities underweight. We are looking toward moderating our
overweight to U.S. growth stocks, as we believe U.S. value
stocks could be poised for a more pronounced rebound once
volatility abates. Despite recent underperformance, we remain
overweight to U.S. small‑caps as they could be one of the
best‑performing sectors in a recovery.
In fixed income, we are adding to credit sectors via high
yield bonds and bank loans, which could potentially deliver
equity‑like returns post-crisis with lower overall volatility.
Until things stop getting worse, we expect a bumpy ride.
Today’s economy is not plagued by the structural challenges of
prior recessions and is supported by unprecedented stimulus
measures. An eventual easing of social distancing measures
could potentially lead to a swift economic rebound, though a
second wave of infection could complicate the recovery.
Important Information
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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of April 2020 and are subject to change without notice; these views may differ from those of other T. Rowe
Price associates.
Small‑cap stocks have generally been more volatile in price than the large‑cap stocks. The value approach to investing carries the risk that the market will not
recognize a security’s intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. Fixed‑income securities are
subject to credit risk, liquidity risk, call risk, and interest‑rate risk. As interest rates rise, bond prices generally fall. Investments in high‑yield bonds involve greater risk
of price volatility, illiquidity, and default than higher‑rated debt securities. Investments in bank loans may at times become difficult to value and highly illiquid, are
subject to credit risk and risks of bankruptcy and insolvency.
This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities
or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or
class of investor. Investors will need to consider their own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts
and tables are shown for illustrative purposes only.
T. Rowe Price Investment Services, Inc.
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or registered trademarks of T. Rowe Price Group, Inc.
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