Speaking at a press briefing, several T. Rowe heads offered an outlook for 2009. The recession will likely continue next year, they said, but the crisis brings some opportunities, particularly in the equity markets.
Speakers displayed a T. Rowe Price chart showing that 2008 is the second worst year of S&P returns in 108 years, which might not be too uplifting. David Giroux, portfolio manager for the Capital Appreciation Fund at T. Rowe, offered some tips for equities that are attractive right now. Stocks are much cheaper than bonds, creating a buying opportunity in some areas.
Giroux said the firm is taking the opportunity to buy away from safe havens such as health care and consumer staples because of decelerating international growth, foreign exchange headwinds, and valuation. Stocks most hit by the downturn—such as media, cable, and select retail—are attractive right now. Some companies, like the Kohls and Best Buys of the world, are poised to reemerge from the credit crunch as stronger when their competitors don’t make it out, he said.
To put it in perspective, stocks are as cheap now as they were when disco was prevalent, said Ray Mills, portfolio manager for the International Growth and Income Fund at T. Rowe. On the international front, there is also a buying opportunity, as emerging markets are on sale, Mills said. He also expects the energy sector to rebound once economies begin to recover.
On the fixed-income side, Mary Miller, director of Fixed Income Division at T. Rowe Price, said 2009 will see a significantly altered landscape, including more transparency and healthy rewards for taking risk as the year progresses. Mark Vaselkiv, portfolio manager for the High Yield Fund at T. Rowe Price, said he is prepared for a challenging environment. However, he said, they are enthusiastic about prospects for investing in high-yield bonds, and seeing prospects for several industries, such as utilities, health care, and energy.