T. Rowe Price's Vohora: Regime change calls for style balance

Shifting landscape

The past decade has been dominated by growth stocks, in particular the US tech behemoths. The multi-year gains have been fuelled by technology unlocking capacity and superior earnings growth – as well as a favourable macro backdrop with low inflation, low interest rates and abundant liquidity. Strong sentiment further propelled segments of the market to extreme valuations.

The pandemic accelerated this trend by ‘pulling forward' future growth and concentrated the gains in a handful of stocks. However, we may have reached a structural inflection point. Rampant inflation, a hawkish Fed and a brutal spike in bond yields have largely driven the losses in global equities in the first half of 2022. After being in deep negative territory, the real 10-year US treasury yield turned positive at the end of April, and the rate shock has had a meaningful effect on US equity valuations. This has been particularly painful for long duration assets, such as growth and tech...