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December 23, 2010 at 07:42 AM
Calling 2010 the “battle of the macro versus micro,” William Stromberg, director of global equity and global equity research at T. Rowe Price, told the crowd at the firm’s outlook briefing, in New York in early December, that “fiscal imbalances in the developed world—Europe, Japan and U.S,” and “diverging policy responses,” namely “austerity in Europe and U.S. stimulus; increased regulation; irrational pessimism,” as well as the quest for “safety,” amount to a “scary macro.”
But this is offset by an “encouraging micro: exceptional productivity…shockingly strong corporate earnings…and attractive free cash flow from global blue chips,” Stromberg 
(left), says. He further notes that “sustainable but subpar recoveries,” in developed countries leave them “vulnerable to shocks;” while in emerging markets, “booming economies” open up “inflation risk.” The bottom line: there are opportunities, but “expect volatility.”
For U.S. equities, strong, “corporate earnings are quite positive,” according to Larry Puglia (left), portfolio manager of the T. Rowe Price Blue Chip Growth Fund and the U.S. Large-Cap Core Growth Strategy. He also calls the outlook for large-cap equities “quite positive.”
Puglia says that “50% of U.S. household assets are in bonds or cash, and “that could fuel an equity rally.” Interest rate risk “in long-duration bonds,” along with all that “cash, after uncertainty abates, will drive equity higher.”
Global Equities
With concerns still evident over the economic crisis in Europe, fear of sovereign debt defaults lingers. The initial thinking was that Europe “could wait until after the crisis for austerity—but Greece and fear drove Europe to deal with this now,” says Robert Smith (left), portfolio manager of the International Stock Fund and the Non-U.S. Equity Strategy at T. Rowe Price. “Growth will be slower,” he adds.
Does it get as scary as Greece? “Spain is the big issue because it’s so much larger than the countries restructured to date,” says Steven Huber (left), portfolio manager of the firm’s Strategic Income Fund. “Politics are entwined also. If [there are] issues with Spain, [it would be] harder for Europe to fund because of [Spain’s] sheer size.”