T. Rowe Price’s strategy: the best investment choice to own in expensive markets

How do you see the stock? The market for the rest of 2020

Page: “House View” First of all, I should say, T. Rowe Price’s asset allocation committee does not have, we are a bit pessimistic, but do not be too pessimistic. We have been reducing our exposure to stocks relative to bonds. For investors who are saving for retirement, a long span of time, the stock is essential. But when we look at the end of this year and early next year, we have slightly reduced our risk. If a stock portfolio usually has 60%, for example for E, we now have 58.5%. We do incremental; we’ll see how things develop.

Why now lighten up? April 30 as Standard & Poor’s 500-stock index gained 7.2 percent so far this year, 18% in the past 12 months, 90% in the past five years, which is an average of 13.7%. The market is close to the highest level in history. Earnings were higher than them in the last 20 years has been 90% of the time. No matter how you look at it, because the next eight years you stare at a bull barrel price is very expensive.

Why is the market so resilient? I find there are two reasons for a warning. The first is very loose central bank policy around the world. This has kept interest rates low, and when push asset values, obtained with surprisingly little inflation. In the United States, is very carefully managed path to higher rates. It is not clear, but the Fed does not want to surprise rate hike market may lead to the stock market downturn surprise. Second, recent factors are increasing confidence. Played a role in the US presidential election, but even before earnings from US companies have begun to slump in late 2015 and 2016 and CEO of consumer confidence is at its highest level since the first half of 2008 recovery, but it remains to be seen hard economic data We will prove this confidence, which is why we want to take off some of the risk of the table.

How investors to cut risk? do-it-yourself investor, it remains a long-term perspective is important, a healthy stock allocation in line with their risk tolerance. At present, investors deposit funds into their portfolio, they may have to increase a little more bonds and other asset classes, such as international stocks. Or, as they withdraw from the investment portfolio, they may withdraw from the stock market a little more.

What are the biggest risk is the stock market? There is a policy to Washington’s threat of political risk and trade protectionism in various countries. This is the context of geo-political issues of North Korea in particular. Energy prices are another risk. We believe that the world is an oversupply of oil, which could lead to oil prices down again return could damage the stock market. And there is always a risk that the Fed will raise interest rates too quickly, or accident, causing investors to slowing economic growth and adverse reactions. These are the known risks. We do not know we do not know, but these risks are the most worrisome, and by nature unpredictable.

I should investors expect? between now and the end of the year, a lot can happen. I think it is more likely that we will see a downturn in the stock market at some point, which will give investors the opportunity to get back, if they have their own securities assets powder. For the stock market is the core scene of some vulnerable tepid returns, given the risk that we just mentioned.

When investors should put their money? The problem is that everything is expensive. We’re talking about eight years of the bull market in stocks, but we’vË just experienced a 30-year bull market in bonds. Stretched valuations in the market. However, stocks in Europe and Japan relative to the US stock cheap. The central bank’s policy in these areas is also more relaxed than in the United States, and these areas are early in the economic cycle, with the recovery and expansion of more space. In the United States, we recommend flexible bond market strategy, we prefer growth stocks to value stocks, although we do not like financial stocks, generally divided into the value of the field. After the election, value stocks, including energy and materials companies, performed very well, but since 2017, we have seen a stake in the rotation back to the fast-growing companies, such as technology stocks. Emerging marketsField a little country in terms of attractive values, but some factors may play against them, including rising US interest rates, a stronger dollar, more protectionism, the potential of the other leg oil prices. In addition, we have recently been looking at the forefront of the market, including countries such as Kuwait and Pakistan, which do not meet, however, with the emerging markets.