Industry Voice: Full Valuations Suggest Caution

clock • 3 min read

At T.Rowe Price, we believe that while a broadening global economic recovery should continue to support markets into 2018, high asset valuations leave little cushion against unexpected market events. In this environment, bonds offer a counterweight to potential periods of equity market disruption, despite the prospect of muted returns in fixed income markets.

key points

  • Broadening global growth should support corporate profits in 2018, but we remain cautious of high equity prices.
  • Whilst bonds appear expensive, they remain an important diversifier for portfolios against disappointing growth or geopolitical events.
  • In developed markets, government, US investment grade and high yield corporate bonds all appear expensive.
  • Despite sounder economies, emerging market bonds are less compelling than previously.
  • Earnings growth, however, could help drive equities.

 

Developed and emerging market equities could both benefit if global economic and earnings growth exceeds current expectations. US tax cuts could provide further earnings upside, while durable domestic recoveries could drive sustainable growth in Europe and Japan. Potential risks include a rise in geopolitical or trade tensions or a central bank policy misstep as interest rates and inflation both appear poised to rise. Read the T.Rowe Price 2018 Global Market Outlook

 

Important Information

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 material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

EEA—Issued in the European Economic Area by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc. All rights reserved.

 

201712- 313586

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