The great thing about a soft landing for stock market investors is that it is followed by a recovery and investors don’t have to suffer a nasty bear market or a recession. But the reality is that investors can remain stuck in “purgatory” for a while, Tim Murray, a vice president and capital markets strategist at T. Rowe Price, said this morning at the firm’s 2024 market outlook press event in New York City.

“That means we’ll have to wait,” Murray said. His advice to investors was play it cautious, wait for opportunities and “don’t be a hero.”

The asset allocation implications follow that logic. “Seek out asset classes and entry points where a recessionary scenario is priced in,” he continued. A portfolio should account for the risks of both inflation and a recession even if fears of both are fading at the moment.

Murray noted that in the more than 12 months since October 31, 2022, the S&P 500 is up about 11%. But take out the so-called Magnificent Seven—Apple, Amazon, Microsoft, Tesla, Meta, Nvidia and Alphabet— and the index is up 1%.

That means those seven stocks are outliers, but it doesn’t necessarily imply most of them are overvalued, he continued. The “outlier valuations” these seven stocks boast “may be justified” but their spectacular returns on equity and other fundamentals, he said.

“Most stock valuations have responded to higher interest rates,” Murray said. “The Magnificent Seven haven’t.” Part of the reason for this is that some os these companies like Apple and Microsoft are sitting on tens of billions in cash.

At the same time, the investing rules that investors grew accustomed to in the previous decade no longer work, he said.

None of the T. Rowe Price investment executives at the event said they expected inflation to return to the 2% area any time soon.

Whereas stock and bond prices were closely correlated during the 2009-2020 era, those correlations now “are constantly shifting,” Murray said. He suggested investors allocate some of their portfolio to real assets.

There are several reasons why no one should anticipate a return to the near-zero interest rate world of yesteryear. Nations and businesses realize they need “to diversify supply chains,” said Peter Bates, a vice president and portfolio manager of the firm’s Global Select Equity Strategy.

“Where is all the labor?’ Bates asked. “Tight labor can’t be changed unless we change our immigration policy or more people come out of retirement.”

In this environment, Bates recommended people invest in companies exhibiting durable growth or a positive change catalyst.