19JUNE 2025By Sébastien Page, CFA®, Head of Global Multi-Asset and Chief Investment Officer, T. Rowe PriceTHE VIEW FROM THE KNIFE'S EDGE: A NEW MARKET REGIMEIn a recent meeting of T. Rowe Price's Asset Allocation Committee, a question was raised about whether we had entered a new market regime. The question is at once simple and complicated. So, I asked my colleague, Gerard Brunick, a quantitative analyst in the Multi-Asset Division, to crunch the data to see whether recent conditions in the financial markets might resemble past market regimes.Some Conclusions First1. We are likely in a new market regime.2. Recent economic conditions do NOT look like the stagflation that occurred in the 1970s.3. We shouldn't get too bearish because, historically, markets showed plenty of life when the fed funds rate was above 5%, as it is now.4. Higher interest rates don't necessarily take all the oxygen out of the system. The market could get excited by the prospect of productivity gains driven by artificial intelligence (AI).Four Historical Market RegimesLooking at market history, we identified four distinct eras:Postwar Boom (1955-1969)Because of data limitations, our "postwar boom" started in 1955, a decade after the end of World War II. This era of prosperity had the strongest economic growth and the lowest unemployment of our four regimes. Inflation was also low, in the 2% range, and there were strong productivity gains.1. Stagflation (1970-1981)With stagflation, inflation spikes due to supply shocks, even when demand is weak. This era featured oil price shocks in 1973-74 and 1978-79. INSIGHTSCXOSébastien Page
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