2020 Global Market Outlook

PRESS BRIEFING

U.S. Equity

John D. Linehan, CFAPortfolio ManagerChief Investment Officer, Equity

November 19, 2019

2

U.S. Equity Outlook: Summary

Market reached all-time highs in November following the Q4 2018 correction

Performance has been choppy and headline driven

– Market continued to rise despite slowing economic environment

– Concerns around ongoing China tariff war and a potential economic downturn created volatility

– Growth outperformed value across all market caps year-to-date in 2019

Valuations are a neutral factor, but defensive parts of the market look expensive

We expect muted returns in 2020 with a wide range of potential outcomes

ENVIRONMENT

Past performance is not a reliable indicator of future performance.As of November 12, 2019

3

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

The Equity Market Roller Coaster Ride

Past performance cannot guarantee future results.The S&P 500 is made up of primarily large-capitalization companies that represent a broad spectrum of the U.S. economy and a substantial part of the U.S. stock market’s total capitalization.Sources: Standard & Poor’s, T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.

January 1, 2000, to October 31, 2019

S&P 500 TOTAL RETURN INDEX

S&P 500 Index

% Gain +/-

2,107March 24, 2000P/E (forward) = 27.2x

-47% | 1,109October 9, 2002

P/E (forward) = 14.9x

+121% | 2,447October 9, 2007

P/E (forward) = 15.8x

-55% | 1,095March 9, 2009

P/E (forward) = 10.3x

October 31, 2019P/E (forward) = 17.2x

+461% | 6,139

S&P 500 Valuation Measures 10/31/19 10/31/18 3-Yr. Avg. 5-Yr. Avg. 10-Yr. Avg.Price to Earnings (P/E Forward) 17.2x 15.5x 16.8x 16.6x 14.9xDividend Yield 2.0% 2.1% 2.1% 2.1% 2.2%

4

Bull Markets Don’t Die of Old Age

1. Economic downturn

2. Regulatory/political uncertainty

3. Federal reserve policy errors

4. Valuation excess

BULL MARKETS TYPICALLY DIE FROM:

The current bull market is the longest but not the strongest in modern history

5

Sources: Federal Reserve, Bloomberg, Haver Analytics, Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved. *Model based on the slope of the yield curve between the 3-Month and 10-Year U.S. Treasury yields. (Left): Grey bars indicate a recession

Recession Concerns Are on the Rise

PROBABILITY OF U.S. RECESSION PREDICTED BY TREASURY SPREAD*

U.S. ECONOMIC CONDITIONS DETERIORATING

CONSUMER CONFIDENCE VS. EXPENDITURES

Slowing manufacturing and a temporarily inverted yield curve increased concerns of an impending recession

12 Months Ahead (Moving Average)January 1960 to September 2019

January 2015 to September 2019 January 2005 to September 2019

20

40

60

80

100

120

140

-4%

-2%

0%

2%

4%

6%

8%

2005

2007

2009

2011

2013

2015

2017

2019

Con

sum

er C

onfid

ence

, 198

5=10

0, S

A, I

ndex

Year

-Ove

r-Ye

ar C

hang

e

PersonalConsumptionExpenditures (L)

ConsumerConfidence - Survey(R)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1960

1967

1974

1981

1988

1995

2002

2009

2016

Rece

ssio

n Pr

obab

ility

60

80

100

120

140

45

50

55

60

65

2015

2016

2017

2018

2019

Inde

x (5

0+ =

Incr

easi

ng)

ISM Manufacturing (L)

CEO Economic OutlookSurvey (R)

Inde

x (5

0+ =

Exp

ansi

on)

6

0

0.5

1

1.5

2

2.5

3

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Dec

-17

Jun-

18

Dec

-18

Jun-

19

Fed

Fund

s Rat

e

Fed Funds Rate

The Federal Reserve Reversed Course

For i l lustrative purposes only. Trend lines shown are not indicative of future movement anticipated by the Federal Reserve. Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.

December 2008 to October 31, 2019FEDERAL FUNDS TARGET RATE

Rate hikes and balance sheet runoff have quickly morphed into rate cuts and balance sheet expansion

The Federal Reserve raised rates nine times between December 2015 and December 2018.

January 2019: Fed Pauses

7

Sources: StrategasResearch Partners, U.S. Census Bureau, https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-inequality.html. 1 The GINI Coefficient is a summary measure of income inequality, which details the dispersion of income across the entire income distribution. The coefficient ranges from 0, indicating perfect equality, to 1, indicating perfect inequality. A higher index reflects high-income persons receiving much larger percentages of the total income of the population. It is not an absolute measure of income or wealth.

Backlash to Globalization Has Created Regulatory Risk

INCOME INEQUALITY STEADILY INCREASING, AS MEASURED BY THE GINI COEFFICIENT1

BETTING ODDS OF 2020 DEMOCRATIC PRESIDENTIAL NOMINEE

The increasing GINI Coefficient has contributed to the popularity of populist policies among political contenders.

1947 to 2018As of October 31, 2019

0.45

0.34

0.36

0.38

0.40

0.42

0.44

0.46

0.48

'47 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02 '07 '12 '17

GINI Coefficient

36

22

1215

7

0

10

20

30

40

50

60

Jan-19 Mar-19 May-19 Jul-19 Sep-19

Warren

Biden

Sanders

YangButtigieg

8

95

97

99

101

103

105

107

109

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19

Perfo

rman

ce (I

ndex

ed to

100

) Executiv e Memo on China Tariffs Round 1 China

Tariffs Annc'd

Round 1(b) China Tariffs

Round 2 China Tariffs

Lighthizer'sCongressional

Testimony

Trump Calls for a Great Trade Deal

Round 3 Tariff

Annc'd

G-20

$300bn at 10%

Annc'd

Trump Announces Phase One Agreement

Past performance is not a reliable indicator of future performance.*Sources (Right): StrategasResearch Partners, T. Rowe Price. The S&P 500 Companies with Highest China Revenue Exposure is composed of 30 companies within the S&P 500 Index that have the highest China revenue and/or China trade lobbying efforts according to StrategasResearch Partners.

Geopolitical Uncertainty Has Increased

Brexit

Turkey/Syria Conflict

Middle East Discord

Hong Kong Unrest

WHILE THE TRADE WAR HAS DOMINATED HEADLINES, OTHER ISSUES INCLUDE:

PERFORMANCE OF S&P 500 COMPANIES WITH HIGHEST CHINA REVENUE EXPOSURE* (100 = 12/31/2017)

As of October 31, 2019

9

Little Sign of Valuation Excess

Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved; MSCI.

FORWARD P/E RATIOS20 Years Ended October 31, 2019

S&P 500 Russell 2000 MSCI All Country World MSCI EAFE MSCI Emerging Markets

Current 17.22 22.20 15.49 14.02 12.11Prior Quarter 16.95 21.27 15.22 13.69 12.15One Year Ago 15.50 19.64 13.71 12.54 10.3420-Year Average 15.56 20.34 14.74 14.40 11.05High 24.12 26.84 25.11 27.22 14.97Low 10.34 13.85 9.44 8.78 7.27

With some exceptions, valuations are roughly in line or slightly expensive compared with historical norms around the world

15.56

20.34

14.74 14.40

11.05

24.1226.84

25.1127.22

14.97

10.34

13.85

9.44 8.787.27

15.50

19.64

13.71 12.54

10.34

17.22

22.20

15.49 14.0212.11

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

S&P 500 Russell 2000 MSCI AC World MSCI EAFE MSCI EM

20 Year AverageYear agoCurrent

10

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

S&P

500

Div.

Yie

ld M

inus

10-Y

ear T

reas

ury Y

ield

5

10

15

20

25

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Pric

e-Ea

rnin

gs M

ultip

le

Past performance is not a reliable indicator of future performance.Sources: T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.

Valuation Metrics Offer Mixed Message for U.S. Market

Current17.2x

Average 16.1X

Average-1.7%

Current0.3%

Median15.7x

Median-1.6%

S&P 500 DIVIDEND YIELD VS. 10-YEAR TREASURY YIELD

S&P 500 PRICE TO 12 MONTHS FORWARD EARNINGSJanuary 1997 To October 2019 January 1997 To October 2019

11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-37% -30% -23% -16% -9% -2% 5% 12% 19% 26% 33% 40% 47% 54% 61%

Dens

ity o

f Pro

babi

lity1

Return

CONCERNS (-) Potential Economic Downturn(-) China Trade Uncertainty

(-) Election 2020 Risk

S&P 500 Index One-Year Returns, Rolling Monthly (Jan. 1950 to Oct. 2019)Future Expectations

As of October 31, 2019

Source: T. Rowe Price.1 Density of Probability reflects the frequency of obtaining values corresponding to those on the X axis.Dashed line is shown for i l lustrative purposes only.

Outlook: Muted Returns With Significant Tail Risk Exposure

Increased probability of “fat tail” events in 2020

FUTURE OPTIMISM (+) Concerns Over Trade War Abate(+) Business Confidence Improves

(+) No Attractive Alternatives

12

Relative Calm Above Belies Volatility Below

WHILE THE MARKET APPEARS SMOOTH ON THE SURFACE, VIOLENT CROSS-CURRENTS ARE CHURNING UNDERNEATH

Growth Outperforming Value

Chasing Defense

Search for Yield

Widespread Innovation

13

Innovation Has Been Widespread…

Sources: Nvidia Corporation, Macquarie Research, T. Rowe Price as of December 31, 2018.

INTERNET AND CLOUD

HEALTH CARE MEDIA ENERGY AUTOMATION

Image classification

Language processing

E-commerce tagging

Digital personal assistants (e.g., Amazon Echo, Siri)

Product recommendations

Cancer cell detection

Diabetic grading

Drug discoveries

Wearable health data recognition

Video search

Captioning

Programming recommendations (e.g., Netflix, Comcast)

Virtual and augmented reality

Hydraulic fracturing

Renewable power generation

Energy storage

Smart power grids

LNG

Factory automation

Self-driving automobiles

Drones

Store automation (e.g., Amazon’s grab-and-go supermarket)

Investment and insurance automation

14

-100%-50%

0%50%

100%150%200%250%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Russell 1000 Value Russell 1000 Growth

36%64%

32%

124%

173%

56%

0%

40%

80%

120%

160%

200%

Earnings Per Share (Next 12 Months) Free Cash Flow (Next 12 Months) Sales Per Share (Next 12 Months)

Russell 1000 Value Russell 1000 Growth

Past performance cannot guarantee future results.Source: T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.

…And Has Created a Strong Fundamental Backdrop for GrowthTOTAL RETURN

CUMULATIVE CHANGE

229%

99%

June 1, 2007‒October 31, 2019

June 1, 2007‒October 31, 2019

15

As of October 31, 2019

Past performance is not a reliable indicator of future performance.Source (Left): June 1926 – December 1978: Fama/French Benchmark Portfolios representing “Big Value” and “Big Growth.” The Fama/French benchmark portfolios are rebalanced quarterly using two independent sorts, on size and book to market. The size breakpoint for “Big” versus “Small” is the median NYSE market equity. The growth/value break point is the 30th and 70th NYSE percentiles of book to market ratios. Source (Right): January 1979 – Present: Russell 1000 Value and Growth Index monthly total returns. T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.

Growth Has Outperformed Value

LARGE-CAP VALUE/GROWTH10-Year Periods (Rolling Monthly

RUSSELL 1000 VALUE P/E RATIOS RELATIVE TO GROWTHDecember 1978 Through October 2019

Most Recent Peak 1.01x

Current 0.66x

Average 0.72x

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

'16

'18

Rela

tive

P/E

(Val

ue/G

row

th)

-10%

-5%

0%

5%

10%

15%

'36

'40

'44

'48

'52

'56

'60

'64

'68

'72

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'80

'84

'88

'92

'96

'00

'04

'08

'12

'16

Annu

aliz

ed R

etur

n Di

ffere

nce

(Val

ue -

Gro

wth

)

Value Relative Growth 10-Year Average-2 Std Dev -1 Std Dev+1 Std Dev +2 Std Dev-1.5 Std Dev +1.5 Std Dev

16

For i l lustrative purposes only. Trend lines shown are not indicative of future movement *Universe consists of the top 50% of dividend-paying companies in the Russell 1000 Index (excluding REITs and non-dividend-paying stocks). Source: T. Rowe Price’s proprietary quantitative model based on data from Thomson Reuters. © 2019 Refinitiv. All rights reserved.**Terciles are based on beta as defined by T. Rowe Price’s proprietary quantitative model . Beta is a measure of market risk of an investment option that shows how responsive the investment is to a given market index.

Market Thirstier for Defense Than for Yield

RUSSELL 1000 INDEX, NEXT 12 MONTHS (NTM) P/E TOP 50% DIV. PAYERS*/ NTM P/E RUSSELL 1000 INDEX

RUSSELL 1000 INDEX, TOP 50% DIVIDEND PAYERS*, RELATIVE VALUATIONOF LOWEST-BETA TERCILE VS. HIGHEST-BETA TERCILE* * (LOW BETA/HIGH BETA)

0.6

0.7

0.8

0.9

1.0

Dec-89 Dec-93 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Dec-17

Rel.

Next

12

Mon

ths

P/E

0.60.81.01.21.41.61.8

Dec-89 Dec-93 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Dec-17Rel.

Next

12

Mon

ths

P/E

December 1989 Through September 2019

December 1989 Through September 2019

17

0.81.01.21.41.61.82.02.22.4

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19

Next

12

Mon

ths P

/E

Past performance is not a reliable indicator of future performance.Source (Upper): T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved. Source (Lower): T. Rowe Price’s proprietary quantitative model based on data from Thomson Reuters. © 2019 Refinitiv. All rights reserved.Stocks that move rapidly, either in a positive direction or a negative direction, are referred to as high momentum stocks, while those that have more steady movements would be considered lower momentum.

Momentum Has Outperformed and Is Expensive

CUMULATIVE RETURNS FOR HIGH- AND LOW-MOMENTUM STOCKS RUSSELL 1000 INDEX (MONTHLY RETURNS INDEXED TO 100)October 2014 to September 2019

RUSSELL 1000 INDEX MOMENTUM RELATIVE VALUATION (HIGHEST QUINTILE MOMENTUM/LOWEST QUINTILE MOMENTUM)January 2003 Through September 2019

90110130150170190210

'14 '15 '16 '17 '18 '19

Inde

xed

to 1

00

Lowest Momentum Quintile (Cap Weighted)Highest Momentum Quintile (Cap Weighted)Russell 1000 Index 187

166146

18

Ignore Valuation at Your Peril

Source: T. Rowe Price’s proprietary quantitative model based on data from Thomson Reuters. © 2019 Refinitiv. All rights reserved.

PERCENT OF COMPANIES IN THE LOWEST QUINTILE OF FORWARD P/E AND THE HIGHEST QUINTILE OF MOMENTUMRussell 1000 Index: December 1989 to September 2019

0%

5%

10%

15%

20%

25%

30%

35%

40%

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

% o

f Low

est P

/E Q

uint

ile in

Hig

hest

M

omen

tum

Qui

ntile

Percent of Cheap Stocks (Lowest Quintile ofP/E) in High Momentum Quintile

When value underperforms to the extent we’re seeing now, there historically has been a sharp reversal

19

Outlook Summary

BALANCE OF RISKS SUGGEST CAUTION WARRANTED

Elevated risks present themselves for 2020, but in aggregate we expect positive returns.

We currently see opportunities in:

– Nondefensive Companies With High Dividend Yields

– Platform Companies With Valuation Appeal

Federal Reserve Easing

Economic Downturn Fears Persist

Neutral Valuations

Regulatory/Political Uncertainty Heightened

20

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. The views contained herein are those of the authors as of November 19, 2019, and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal.

All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., Distributor.

© 2019 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

201910-987569