Citi Personal Wealth Management

Mid-Year Outlook 2020:
A Changed World —
Investing in the New Cycle

Market Outlook: June 2020

Highlights

As the calendar rolled over at midnight on New Year’s Eve many looked forward to the “Roaring 20’s.” Just a few months later and we are looking at a changed world due to the COVID-19 coronavirus. Many have suffered immeasurable personal loss, many small businesses are struggling to survive, and social tensions are elevated. However, many advanced economies are starting to reopen and the world will gradually shift from hurting to healing. It’s against this backdrop that we discuss how to invest in this new economic cycle.

There are tentative signs that the global economy may be on the mend. This is an engineered economic collapse that will likely generate an extremely deep, but brief global recession in order to save human lives. With over 100 COVID-19 vaccines in development, we believe that a vaccine could be delivered by early 2021 and lead to a sharp rebound in global growth — from a 3.5% contraction in 2020 to a 5.5% surge in 2021.

The recovery in financial markets may look much more “V-shaped” than the recovery in the broader economy. Some service sectors like leisure and hospitality and international travel may take longer to recover. This bifurcation has led to a divergence in equity market performance with “stay-at-home” stocks like cloud computing and home entertainment outperforming more cyclical “leave-my-home” stocks like banks, industrials, and travel-related stocks. We think these beaten down sectors will eventually catch-up as the economy recovers over the next 12 to 18 months.

We acknowledge that the outlook is more uncertain than usual. The prospect of an increase in infections remains real and political tensions between the U.S. and China could cause volatility as the U.S. election approaches. However, in our view, central bank stimulus and government fiscal stimulus have significantly improved financial conditions. We see no reason to think that this support will be removed while unemployment remains elevated. We think it’s unlikely that we retest March’s stock market lows.