Industry Voice: After Goldilocks, Which Bear (Market) Will Prevail?

T. Rowe Price's Taymour Tamaddon looks at why a clearer picture of the U.S. market outlook should emerge over the coming weeks

clock • 4 min read
Industry Voice: After Goldilocks, Which Bear (Market) Will Prevail?

The U.S. economic outlook remains highly uncertain, but we believe the environment will begin to reveal itself more clearly—good, bad, or somewhere in between—by the end of 2022. This does not necessarily mean that markets will be quick to respond, and discount appropriately, but we should gain a reasonable idea about how the dust is settling in the U.S. reasonably soon. With the next Federal Reserve (Fed) interest rate‑setting meeting on December 14, there is one further inflation print to be released before that time. With the latest U.S. inflation data coming in below expectations, this remaining data point takes on added significance.

As it currently stands, we believe that we could see three possible economic scenarios play out in the U.S. as we move into the new year. To elaborate on these and on other key questions about the U.S. market outlook in 2023, we spoke with Taymour Tamaddon, portfolio manager of the T. Rowe Price US Large‑Cap Growth Equity Strategy.

1.  Can you elaborate on the three possible economic scenarios and how you see U.S. equities—particularly growth stocks—faring in each?

The mild bear. The first possible scenario is that the Federal Reserve manages to orchestrate a relatively quick soft landing. This is undoubtedly the best outcome as far as growth investors are concerned. However, at the same time, we think this is the most unlikely outcome, given where we are currently, and the high degree of uncertainty that remains. In this scenario, interest rates do not have to go much higher, inflation recedes quite quickly in response to rate rises, and economic growth remains generally solid, with modest expansion that is ultimately not too hot and not too cold. However, the probability of this scenario being landed appears slim, in our view.

The moderate bear. This second scenario is the one that we believe to be the most likely outcome—is that we experience a mild recession, but where interest rate rises are soon sufficient to gradually slow the economy and tame inflation from current elevated levels. In this scenario, our expectation is for a few quarters of slowing growth, with inflation gradually inching down, before ultimately seeing early signs of a recovery from mid‑2023.

In such an environment, growth becomes harder to find, and higher‑quality companies with stronger fundamentals, better business operations, and quality management are likely to be rewarded by investors. This is a supportive backdrop for growth investors as individual company quality becomes the principal market driver, rather than being driven by macroeconomic factors or investment momentum. And in a mild recessionary environment, those companies that can continue to grow their earnings, competitive leadership, and market share in the absence of a strong gross domestic product tailwind tend to be growth‑oriented companies, more so than their value counterparts.

 

This post was funded by T. Rowe Price

Important Information

For professional clients only. Not for further distribution.

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 noted on the material 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.

This material is issued and approved 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.

© 2022 T. Rowe Price. All rights reserved. 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.

 

More on Equities

Deep Dive: Uncertain economic outlook boosts case for blended portfolios

Deep Dive: Uncertain economic outlook boosts case for blended portfolios

Value and growth have a role to play

Valeria Martinez
clock 23 February 2024 • 5 min read
Partner Content: Three Minutes With Federated Hermes Limited's Mark Sherlock

Partner Content: Three Minutes With Federated Hermes Limited's Mark Sherlock

What are the prospects for US SMID equities in 2024?

Federated Hermes Limited
clock 20 February 2024 • 1 min read
Partner Insight: Attractive yields but narrow spreads - The credit dilemma

Partner Insight: Attractive yields but narrow spreads - The credit dilemma

Arif Husain, Head of International Fixed Income and Chief Investment Officer, Fixed Income at T. Rowe Price
clock 14 February 2024 • 4 min read
Trustpilot