Global Market Environment

Global Market Environment

Fourth Quarter 2019

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Global Market Market Themes and Risks

Environment

As of 31 December 2019

Market Themes

Stabilizing Global Growth Trade Tensions Easing Dovish Central Banks Stabilizing Earnings Outlook

Resilient US Dollar

Market Risks

Geopolitical Uncertainty Weak Global Capex Profit Margins Under Pressure European Manufacturing Slump

Muted Impact of Policy Response

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Global Market Valuation Comparisons

Environment

As of 31 December 2019

? U.S. Treasury valuations are expensive, but remain slightly cheaper than other sovereign options.

? U.S. Equity valuations are elevated, particularly largecap and growth stocks.

? Valuations are more reasonable in select equity markets, but these markets are heavily weighted toward structurally challenged sectors and areas that are cyclically sensitive.

VALUATION COMPARISONS

Percentile Rankings vs. Past 15 Years, As of 31 December 2019

Percentile Ranking vs. History

100% 90%

96% 97% 89%

84%

80%

70%

60%

50%

40%

30%

20%

10%

0%

87%

87%

74%

79%

57%

100%

83%

81%

62%

100%

79% 78% 65%

100% 93% 84%

Median 37%

Based on 10-Year Benchmark

Government Bond Yields

Based on OptionAdjusted Spreads

Based on Equal Weighted Average of

NTM P/E, P/B, and P/Cash Flow

Based on Equal Weighted Average of

NTM P/E, P/B, and P/Cash Flow

Based on Equal Weighted Average of

NTM P/E, P/B, and P/Cash Flow

*Only includes November 30, 2004 to present due to data availability **Does not include P/Cash Flow due to data availability Indices used, from left to right above, beginning with U.S. IG Corp.: Bloomberg Barclays U.S. Investment Grade Corporate, Bloomberg Barclays Euro Aggregate Credit, Bloomberg Barclays U.S. Aggregate Credit ? Corporate High Yield, Bloomberg Barclays Global High Yield, Bloomberg Barclays Emerging Markets USD Aggregate, MSCI USA, MSCI Europe, MSCI Japan, MSCI Emerging Markets, S&P 500, S&P 600, MSCI EAFE Large Cap, MSCI EAFE Small Cap, S&P 500 Growth, S&P 500 Value, MSCI EAFE Growth, MSCI EAFE Value Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved., Source for Bloomberg Barclays index data: Bloomberg Index Services Limited., MSCI, Standard and Poor's. See Additional Disclosures on slide 29.

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As of 31 December 2019

Global Market Environment

Forward looking and high frequency economic data indicate that the U.S. economy has stabilized.

Conditions have also stabilized globally, although European economic activity remains somewhat concerning, particularly in Germany.

The drivers of the improvement appear to be a combination of easing trade tensions and the easing of financial conditions.

Financial conditions have improved markedly, as central banks in the U.S. and throughout the world have loosened monetary policy.

Recession Concerns Have Faded

U.S. ECONOMIC CONDITIONS STABILIZING

January 2015 to December 2019

60 U.S. PMI (L)

58

CEO Economic Outlook Survey (R)

Index (50+ = increasing)

56

54

52

50

48 2015

2016

2017

2018

2019

GLOBAL ECONOMIC CONDITIONS STABILIZING

January 2015 to December 2019

56

Global PMI (L)

55

Emerging Markets PMI (L)

54

Euro Area PMI (R)

Index (50+ = increasing)

53

52

51

50

49

48

47 2015

2016

2017

2018

2019

GLOBAL FINANCIAL CONDITIONS VS.

GLOBAL PMI

140

January 2015 to June 2020

Global Financial Conditions Index* (Left

99.5

Axis, 6 month lead)

55

120

Global Manufacturing PMI (Right Axis)

54 100

53

80

100.0

52 60

51 100.5

50 62

59

49

56

101.0

48

53

50

2015

2016

2017

2018

2019

47 2020

47

44

*GDP weighted average of Goldman Sachs Financial Conditions Indices for the following countries/regions: U.S., China, Euro Area, Japan, Brazil, Australia, Canada, U.K. Sources: Goldman Sachs via Bloomberg. Used with permission of Bloomberg Finance L.P. Haver Analytics/JP Morgan/IHS Markit/ Business Roundtable/Federal Reserve Bank of New York.

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Global Market A dovish turn by Central Banks

Environment

As of 31 December 2019

The U.S. Federal Reserve pivoted from raising rates to cutting rates during 2019, and is now presumably "on hold".

Numerous global central banks have also shifted into easing mode over the past year, particularly in emerging markets. During 2019, there were 131 rate cuts globally, compared to only 21 hikes.

Market expectations for the Fed Funds Target Rate have been falling sharply since mid-December, but have recently stabilized. Currently, futures markets are pricing in a target rate of 1.36% (approximately 1 cut) by the end of 2020.

The FOMC's projections (aka "the Fed Dot Plot") have also shifted lower over the past year, and now project the rate to be unchanged during 2020.

GLOBAL CENTRAL BANK ACTIONS*

September 2018 to December 2019

25 20 15 10

5 0

Hikes Cuts

Fed Target Rate Fed Target Rate

FOMC PROJECTIONS

January 2017 to December 2019

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

Fed Funds Target Rate Dec-2018 Jun-2019 Dec-2019

FUTURES MARKET EXPECTATIONS

January 2017 ? December 2019

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

Fed Funds Target Rate Fed Fund Futures as of 30 Nov 18 Fed Fund Futures as of 30 June 19 Fed Fund Futures as of 31 Dec 19

Past performance is not a reliable indicator of future performance. *According to

Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved. Haver Analytics/Federal Reserve Board.

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Global Market Earnings Outlook Stabilizing

Environment

As of 31 December 2019

Y/Y (%) Earnings Per Share Growth Estimates Y/Y (%) Earnings Per Share Growth Estimates

Earnings growth in 2019 deteriorated in concert with economic data, with all

2019 EPS GROWTH ESTIMATE PATHS

January 2018 to December 2019, in U.S. Dollars

2020 EPS GROWTH ESTIMATE PATHS

January 2018 to December 2019, in U.S. Dollars

three major regions finishing in negative territory.

15%

Russell 3000 MSCI EAFE MSCI Emerging Markets

15%

15%

Estimates for markets outside of the U.S. have fallen furthest as these markets are more cyclically sensitive and more reliant on trade.

However, estimates for 2020 have held up well, indicating that most analysts expect economic stabilization in 2020.

10% 5%

10% 5%

12% 7%

0%

0%

-2%

-5%

-5%

-5%

-10%

-15% 2018

2019

-11%

-10%

-15% 2018

2019

Past Performance is not a reliable indicator of future performance.

Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved., Russell, MSCI. See Additional Disclosures on slide 29.

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As of 31 December 2019

Global Market Global trade stabilizing?

Environment

Global trade weakened significantly in the latter half of 2018 amid aggressive trade negotiations between the U.S. and its major trading partners.

The U.S. and China have agreed to a "Phase 1" deal on trade, which has halted tariff escalation. But uncertainty remains significant, with "Phase 2" negotiations ongoing and the most contentious issues still unresolved.

It is also not clear that the U.S.-China trade spat is the most influential driver of the global slowdown in trade. Trade has also faced headwinds from the ongoing deceleration of Chinese economic growth, Brexit uncertainty, and a broad slowdown in capex spending.

Year over Year Change (%)

SELECTED TRADE INDICES

January 2015 to December 2019

55

54

53

52

Index Level

51

50

49

48

47

46

45 2015

2016

China New Exports PMI (L)

ISM Manufacturing - Export Orders (R) 65

60

55

50

45

40

35

2017

2018

2019

GLOBAL TRADE VOLUME VS. GLOBAL PMI

January 2015 to December 2019

8%

Trade (L)

Global Manufacturing PMI (R) 56

55 6%

54

4%

53

52 2%

51

0%

50

49 -2%

48

-4%

47

2015

2016

2017

2018

2019

Index Level

Sources: Haver Analytics / IHS Markit/ Institute for Supply Management/ China Federation of Logistics and Purchasing/ Netherlands Bureau for Economic Policy Analysis

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Global Market Environment

As of 31 December 2019

Stocks Have Already Priced in a Recovery

Global economic indicators began to stabilize in August, and have since shown improvement, but not a clear rebound.

Equity markets, however, have rallied sharply in anticipation of a full economic recovery.

EQUITY MARKET PERFORMANCE VS. GLOBAL PMI

1/1/2015 to 12/31/19

50%

Russell 3000 (L)

MSCI AC World ex USA (L)

40%

55

Global Manufacturing PMI (R)

54

30%

53

Trailing 12 Month Perforamcne (%) Index Level

20%

52

10%

51

0%

50

-10%

49

-20% 2015

2016

2017

2018

2019

48 2020

Past performance is not a reliable indicator of future performance.

Source: Haver Analytics / HIS Markit. T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved. Russell, MSCI. See Additional Disclosures on slide 29.

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