How does T. Rowe Price see the markets unfolding through to year end?

When T. Rowe Price investment experts shared their outlook for 2025 in November last year, the presidential election had only just happened and few expected what was to come from the early days of the Trump administration.

Now, as we approach the halfway point of the year, experts have once again considered what may be ahead for the next six months, with the hindsight of what has happened so far, although certainty is far from assured.

"The US administration's tariffs—combined with any retaliatory measures from its trading partners—will deliver a supply shock to the US and a demand shock to the rest of the world, including China and Europe,” said Blerina Uruçi, the firm’s chief US economist. “The severity of these shocks will depend on the outcome of ongoing trade negotiations and legal challenges, but it seems certain that the world's two largest economies, the US and China, will experience lower economic growth than projected at the beginning of the year—and the ramifications of this will be felt across the globe, irrespective of any individual trade deals struck."

With investors and their advisors trying to second-guess how Trump’s policies may impact the domestic and global markets, equities are likely to see a broadening of focus with a continued dilution of the US/megacap concentration of recent years through greater interest in value stocks and emerging markets.

“An expanding opportunity set in stock markets was on its way prior to last year's US presidential election; the trade policies implemented since then have merely sped up the process,” said Josh Nelson, head of Global Equity. “We believe this will lead to an expansion of investable stocks in the US and abroad. We are returning to an investing environment in which more sectors and regions can generate meaningful returns—an environment demanding diversification and favoring active management.”

For fixed income, T. Rowe Price notes the above-target inflation in the US and some other developed markets and Ken Orchard, head of International Fixed Income says historical fiscal precedent has been upended by tariffs and other factors such as Germany’s fiscal expansion. This has led by a weaker outlooked for sovereign bonds in developed markets and a stronger one for credit and some Ems.

“The likelihood of a global recession - with the US leading the downturn - has also increased,” he said. “However, instead of a traditional recession, what may transpire, especially in the US, is a longer period of subpar growth with both higher unemployment and higher inflation."

The firm is expecting multi-asset strategies to continue to play a key role in inflation protection and equity diversification. This could include inflation protected bonds, real assets, and international and value equities.

Active management is likely to be in favor and to outperform given the uncertainty and market volatility.

“In times of rapid geopolitical change, we tend to lean more heavily than usual on asset class valuations when making portfolio allocation decisions,” said Tim Murray, Capital Markets strategist. “Even after the concentrated selling pressure on growth stocks and value's relative outperformance in early 2025, value stocks look relatively more attractive than growth stocks moving forward. In a typical economic growth downturn or recession, we would expect US equities to hold up better than international stocks. But we believe the underlying dynamics of this year's slump may be different, leading us to modestly favor non-US shares."