As a turbulent 2022 draws to a close, Citi Global Wealth Investments predicts a shallow recession in 2023, but believes that markets will begin to focus on 2024’s recovery
In 2023, CGWI predicts the weakest annual global economic growth in forty years outside of the Global Financial Crisis and the COVID shutdowns. The year ahead is likely to see:
- A shallow US recession and worse in some other places such as the Eurozone
- A recovery in Chinese growth, by contrast, as pandemic restrictions are relaxed
- US inflation continuing to ease, ending 2023 at around 3.5%
- The US Federal Reserve to start cutting interest rates by the second half of the year
- A 10% drop in global earnings per share
Just as 2022’s global market turmoil reflected these forecast conditions for the year ahead, investors will likely start to focus on 2024’s recovery during 2023. With the current equity bear market probably incomplete, CGWI enters the year positioned defensively, but expects to pivot as the year progresses.“Over time, the US stock market has never bottomed before an associated recession has even begun, so we regard recent equity upside as a bear market rally,” says David Bailin, Chief Investment Officer and Head of Citi Global Wealth Investments. “A year like 2022 can make holding excess cash seem tempting, but the clear lesson of history is that this almost always leads to missing opportunities when markets begin to recover. For 2023, we reiterate the fundamental wisdom of keeping portfolios fully invested, anticipating the opportunities that we expect.”
CGWI sees a likely sequence of potential opportunities, including:
- Short-term US investment grade fixed income amid today’s higher interest rate environment
- Defensive equities such as resilient dividend payers as the bear market continues for now
- Non-cyclical growth equities to bottom before cyclicals once the Fed pivots to cutting rates
- A subsequent entry point into more cyclical equities
- “Deep value” in select non-US assets and currencies once the US dollar peaks
- Certain alternative strategies to position for distressed and other opportunities following the recession
“The sharp declines across many asset classes in 2022 has left long-term valuations more attractive,” said Steven Wieting, Chief Investment Strategist and Chief Economist at Citi Global Wealth Investments. “For the first time in several years, for example, we see genuine portfolio value in fixed income. Short duration US Treasuries present a compelling alternative to holding cash.”CGWI has also updated its case for “unstoppable trends,” the powerful multi-year phenomena that continue to reshape business and everyday life, as well as portfolios. These include digitization, aging populations, the rivalry between the US and China and the transition to clean and secure sources of energy. CGWI highlights ways to seek exposure to these transformational forces in portfolios.
