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Market Outlook: January 2019
Highlights
One of Canadian singer-songwriter Leonard Cohen’s most beloved lyrics is that “There is a crack in everything, that’s how the light gets in.” With many asset classes struggling to post positive returns in 2018, we think that most investors would agree that there seems to be a “crack in everything” right now. However, just like Cohen, we think that investors may be able to find some light in 2019.
Global economic growth has been slowing with many developed markets failing to live up to elevated expectations. While this slowing has many concerned that a recession may be in the offing, we think that growth will hold up throughout most of 2019. That said, the U.S. economy may slow to a pace of about 2% by year-end and will now likely be on “recession watch” for the foreseeable future.
We think that the bull has been gored, but is still alive (at least for now). Although we acknowledge that it has clearly been slowed by increasing bouts of volatility and headwinds emanating from slowing growth and trade policy uncertainty, Citi’s strategists still believe that global equities could return about 7% in 2019. The U.S. could return mid-single digits as corporate earnings slow, but remain positive.
Citi Private Bank’s Global Investment Committee has been gradually reducing its exposure to equities since the beginning of 2018 – bringing down the global equity overweight from +4.0% to just +1.0% as of December 2018. Modest overweights include Europe, Emerging Asia, and Emerging Latin America. We still think a neutral stance is warranted on U.S. shares. Fixed income preferences remain slanted towards short-term U.S. Treasuries, U.S. municipals, and emerging market debt.
Citi Personal Wealth Management
Global Economy: Growing, But Slowing
The U.S. economy may be slowing, but we expect positive growth in 2019
When it comes to global economic growth, doubt springs eternal with many investors becoming increasingly concerned about the pace of global economic growth. We agree that global growth does appear to be slowing some (it has been since the onset of 2018), but we still think that global gross domestic product (GDP) will remain solid through next year (see Figure 1). Though risks to the outlook are probably slanted to the downside with the U.S. economic expansion getting increasingly long in the tooth.
| Region | 2018 | 2019 | 2020 |
|---|---|---|---|
| Global | 3.2% | 3.1% | 3.0% |
| United States | 2.9% | 2.8% | 2.0% |
| Euro Area | 1.9% | 1.5% | 1.6% |
| Japan | 0.8% | 1.1% | 0.4% |
| China | 6.6% | 6.2% | 6.0% |
| Emerging Markets | 4.6% | 4.5% | 4.6% |
Citi Investment Research and Analysis and Citi Personal Wealth Management as of December 11, 2018. All forecasts are expressions of opinion, are not a guarantee of future results, and are subject to change without notice.
In general, we think that the fiscal boost from the Tax Cuts and Jobs Act will likely support U.S. growth through at least mid-2019 before starting to fade more noticeably in the back half of next year. However, even then, Citi’s economists still think that real U.S. GDP could maintain a pace of about 1.9% in the fourth quarter of 2019. Slowing, but not stopping.
That said, we do see the odds of a U.S. recession as rising with some early indicators like the yield curve and non-financial corporate debt levels starting to signal early warning signs.
Based on the U.S. yield curve, which is one of the best predictors of recessions, the next U.S. recession is probably at least a year or two down the road. Perhaps even more. As Figure 2 shows, during the past few economic cycles, U.S. recessions have lagged an inverted yield curve by about one or two years. Currently, the yield curve (which we define as the 10-year U.S. Treasury yield minus the 2-year U.S. Treasury yield) remains in positive territory with the yield curve about 10 basis points (or 0.10%) above inversion. This suggests to us that a U.S. recession remains unlikely in the near-term, but it is probably safe to say that the U.S. economy is officially on “recession watch.”
Haver Analytics and Citi Personal Wealth Management as of December 10, 2018. Note: In this instance, the “yield curve” is defined as the 10-year U.S. Treasury yield minus the 2-year U.S. Treasury yield.
Away from the U.S., growth is likely to be somewhat divergent. The European economy looks like it will ease from a pace of 1.9% in 2018 to a pace of about 1.5% in 2019. In Japan, things look a little better with growth expected to rise from 0.8% in 2018 to 1.1% in 2019 on sustained business fixed investment, front-loaded demand ahead of the planned consumption tax in October 2019, and the fiscal boost from the upcoming FY2018 supplementary budgets. In emerging markets, our economists are looking for growth to ease a bit as China faces strong headwinds from both external and internal demand. However, emerging markets as a whole should remain fairly steady at 4.5% growth in 2019 (versus 4.6% in 2018).
Again, slowing, but not stopping.
Global Stocks: Late Cycle
The bull has been gored, but we believe it is still alive
When it comes to 2018, we think that most investors would agree that it has been a bumpy ride. After a powerful start to the year, the S&P 500 quickly fell into correction territory as investors worried about an overheating economy and rising interest rates. Now, as we approach the end of the year, investors are worried that a partial inversion of the yield curve may be pointing towards a U.S. recession. We are hard-pressed to think of two more divergent scenarios in such a short period of time.
With investor confidence swaying back and forth, it is no surprise that equity markets have experienced similar bouts of volatility. As the old adage says, “markets hate uncertainty.” However, we do feel like it is worth pointing out that even amid all of this uncertainty, the S&P 500 looks like it will finish the year within an earshot of where it started the year (see Figure 3).
Haver Analytcis and Citi Personal Wealth Management as of December 11, 2018.
Apart from the shifting narrative on the economy, we have also experienced a shifting narrative on corporate earnings. At the onset of 2018, one of the key underpinnings of the bullish stance on Wall Street was the prospect for 20% plus earnings-per-share (EPS) growth. Importantly, earnings delivered, but returns did not.
One could easily argue that returns were sub-par for any number of reasons, but at least part of it is attributable to the expected slowdown in earnings growth in 2019. Over the long-run, equity prices tend to rise on positive earnings so we think there’s a decent chance that U.S. equities will post a positive return in 2019 (see Figure 4). However, much will depend on how much earnings slow. Will they match Citi’s expectations of 6% to 8% S&P 500 EPS growth or fall into negative territory (or an earnings recession)? We don’t see the latter scenario as likely, but it is worth a consideration.
Bloomberg and Citi Personal Wealth Management as of December 7, 2018. All forecasts are expressions of opinion, are not a guarantee of future results, and are subject to change without notice.
This leaves us believing that global equities will remain volatile in 2019, but could still return 7% or so. Overall, we still think that a neutral stance towards U.S. shares is warranted. As to our slight overweight on emerging markets, we think that a yield curve inversion could actually bolster our expectations for outperformance (see Figure 5).
| Date of U.S. Yield Curve Inversion | S&P 500 | MSCI Emerging Markets |
|---|---|---|
| 6/1/1973 | -15.1% | - |
| 11/1/1978 | 10.1% | - |
| 10/24/1980 | -10.1% | - |
| 5/31/1989 | 12.2% | 25.2% |
| 7/13/2000 | -18.4% | -32.6% |
| 7/31/2006 | 14.8% | 42.2% |
| Average: | -1.1% | 11.6% |
Bloomberg and Citi Personal Wealth Management as of August 1, 2007. There can be no assurance that these market conditions will remain in the future. Note: “Yield curve” in this case is the 10-Year U.S. Treasury yield less the Fed Funds rate.
Global Fixed Income: Tighter Policy
Central banks are trying to normalize monetary policy
After years of extremely accommodative monetary policy, the Federal Reserve is now trying to normalize (or tighten) monetary policy. Importantly, this comes at a time when the Trump Administration is using fiscal stimulus to ramp up economic growth. This dichotomy has led many to believe that interest rates will rise as the Fed maintains its auto-pilot like course on rates.
These concerns were highlighted by the stock market’s negative reaction to Fed Chair Jerome Powell’s comments on October 3rd that the Fed remains a long way from the neutral rate (see Figure 6). Since then, the Fed has sounded a bit more dovish by saying that the fed funds rate remains just below a “broad range” of what should be considered neutral, but investors clearly remain wary of further rate hikes.
Haver Analytics and Citi Personal Wealth Management as of December 11, 2018.
At the time of this writing, Citi’s economists are expecting that the Fed will hike at their December 19th meeting (just a couple of days after this publication) and an additional two times in 2019. Obviously we may have to update those views following meeting, but the primary takeaway should be that our economists are expecting to see a pause in rate hikes after the first half of 2019.
Regardless of the outcome, we think that investors should take advantage of this rising rate scenario as shorter-term U.S. bonds have now become an attractive source of income. With 2-year U.S. Treasuries now yielding almost as much as 10-year Treasuries (see Figure 7), we think that investors should take advantage of higher rates with less duration risk. This is why Citi Private Bank’s Global Investment Committee has been raising its overweight to short-term fixed income assets for the greater part of 2018.
Haver Analytics and Citi Personal Wealth Management as of December 11, 2018.
Away from short-term fixed income, we also see opportunities in several other areas. In the U.S., those overweights include high yield, municipals, and floating rate fixed income. As far as long-term U.S. Treasuries, the Committee remains neutral.
Away from the U.S., preferences include emerging market debt in Latin America (hard currency and local) and Asia (hard currency). Though we are recommending a more selective strategy than in the past as a few markets remain under pressure. In Europe, the Committee is underweight investment grade corporate debt and neutral on corporate high yield. In terms of European and Japanese sovereign bonds, the Committee remains deeply underweight due to extremely low yields.
Even though we still appear to be in a rising interest rate environment, we think that fixed income assets are a key diversifier for global portfolios and are actively encouraging investors to take advantage of the new alternatives to simply holding cash.
Risks to the Outlook: Policy Uncertainty
Trade, foreign, and monetary policy still present risks
Geopolitical risk remains as present as ever. The chance of a policy misstep remains possible on many fronts (trade policy, monetary policy, foreign policy, etc.). From the market’s perspective, U.S. and Chinese trade policy probably represents the largest element of uncertainty (see Figure 8).
Haver Analytics and Citi Personal Wealth Management as of November 2018. Note: The subindex is derived using results from the Access World News database of over 2,000 US newspapers.
While the level of uncertainty has declined with the announcement of the United States-Mexico-Canada Agreement (USMCA) and the trade truce with Europe, it still remains quite elevated when compared to levels over the last decade or so (again see Figure 8). This is of course due to the ongoing trade tensions between the two largest economies in the world (the U.S. and China).
It’s difficult to predict the end result, but we do feel as though some progress is being made with China recently suggesting that existing tariffs on foreign autos could potentially be reduced from 40% to 15%. However, Citi’s economists believe that things could easily worsen before getting better.
They believe that significant structural reforms by China will be required for the truce to last and expect the U.S. to focus on additional trade and investment restrictions on China. While we do think that the recent volatility in financial markets is pressuring both sides to make a deal, a quick resolution still seems unlikely. This expectation is also being reflected in business surveys with the ifo World Economic Survey reporting that manufacturers are dramatically lowering their expectations for global export volumes (see Figure 9).
Haver Analytics and Citi Personal Wealth Management as of 4Q 2018. Note: A positive balance represents the net balance of respondents expecting an improvement in global exports and a negative balance represents the net balance of respondents expecting a deterioration over the next six months. A mid-range lies at 0 points and is reached if the share of positive and negative answers is equal.
While the proposed tariffs may only account for a few tenths of a percent of nominal GDP in the affected countries, many companies have complex supply chains and the imposition of additional tariffs can easily impact the bottom line. We think it’s important to remember that U.S. companies and consumers bear the costs of tariffs on foreign goods as it increases the prices that they pay for foreign goods. The notion that China is “paying a tax” is not correct.
If there is a silver lining (aside from possibly achieving fairer trade), it is that trade deals with the European Union (EU), Japan, and the UK appear to be taking shape and will probably be reached with less political rhetoric. In addition, reforms to the World Trade Organization (WTO) may also be possible with many agreeing that reforms may be needed in order to adapt to the new technology-heavy, modern economy. At this point, most discussions are focused on the risks, but it is probably worth considering the potential rewards (a reduction in global tariffs and stricter enforcement on intellectual property rights).
Citi Private Bank’s Asset Class Views
| Asset Class: Fixed Income | View | Investment Rationale |
|---|---|---|
| U.S. Large Cap | Neutral | The Global Investment Committee (GIC) maintains its neutral, fully-invested weighting on U.S. large cap equities. U.S. large cap firms are on track for 23% or higher EPS gains in 2018. Less than 1/3rd of this year’s gains appear related to the corporate tax cuts. We expect an 8% EPS gain in 2019. Although we should note that there’s a potential for sizable profit hits from the trade war. |
| European Large Cap | Overweight | Modest overweight. While growth has slowed, European economic fears are generally exaggerated and valuations remain attractive. Equity dividend yields easily eclipse corporate bond yields in the region by over 150 bps. However, concerns over Italy’s debt and relations within the EU remain a risk. We are neutral on UK large cap equities on Brexit, with political risks material for the UK’s economic outlook. |
| Japan Large Cap | Neutral | Remain neutral. Autos trade risk is material, while other regions have seen greater pressure (i.e. Germany). We see Bank of Japan policy as remaining easier for longer, mitigating impact. We also see attractive robotics/automation shares in Japan. |
| Developed Market Small and Mid-Cap (SMID) | Underweight | US SMID are a slight underweight due to their higher debt burdens when compared to large firms. While active selection may be able to find securities with strong growth opportunities, the broad asset class tends to underperform in a cooling U.S. growth environment, as we expect. |
| Emerging Asia | Overweight | US/Chinese economic relations still present economic risks for both economies. In recognition, we have spread our EM Asian overweight more broadly, including markets such as Thailand and Malaysia. We think they may be marginal beneficiaries of multinationals diversifying their supply chains. On China, we maintain a small overweight as China’s equity valuations seem to embed severe domestic credit tightening while policymakers are actually doing the opposite and easing. |
| Emerging EMEA | Underweight | Underweight. High exposure to U.S. interest rate pressures leave the region vulnerable. While valuations have cheapened, we see better opportunities elsewhere. |
| Emerging Latin America | Overweight | In LatAm, we remain overweight Brazil, Colombia, and Peru. Mexico remains a neutral weighting after severe valuation pressures stemming from concerns over economic policies of the income administration. |
Citi Private Bank as of November 28, 2018. Note 1: Green Arrow = Overweight; Dashed Line = Neutral; and Red Arrow = Underweight. Note 2: Based on a risk level 3 portfolio, which is designed for investors with a blended objective who require a mix of assets and seek a balance between investments that offer income and those positioned for a potentially higher return on investment. Risk level 3 may be appropriate for investors willing to subject their portfolio to additional risk for potential growth in addition to a level of income reflective of his/her stated risk tolerance. All allocations are subject to change at discretion of Citi Private Bank’s Global Investment Committee and Asset Allocation Team. There can be no assurance that these market conditions will remain in the future.
| Asset Class: Fixed Income | View | Investment Rationale |
|---|---|---|
| U.S. Sovereign Bonds | Overweight | Short-term U.S. yields are now higher than long-term developed market (ex-US) government bonds. High quality short-term U.S. fixed income is our largest overweight and is viewed as an enhancement to cash yields. For taxable US investors, municipals with 6% taxable-equivalent yields remain a strong opportunity across maturities. We remain neutral in long-term UST. We expect the US yield curve to continue flattening as the Fed tightens, limiting downside risk, though we don’t recommend overweighting duration tactically. |
| European Sovereign Bonds | Underweight | Negative policy rates and slow economic growth have left core European bond yields historically low. With interest rates in the region so low, and sensitivity to any rate rise so high, we remain deeply underweight sovereign bonds in Europe. |
| Emerging Market (EM) Sovereign Bonds | Overweight | We remain overweight Latin America (hard currency & local) and EM Asia hard currency. We would prefer a more selective strategy compared to 2017 with the few markets under severe fundamental pressure still to be avoided. |
| Corporate Investment Grade | Overweight | Citi remains overweight short-term U.S. investment grade (IG) corporate debt. Valuations have become more compelling as yields are their highest since 2011. For US taxpayers, municipal debt has risen in yield to attractive levels. However, the Committee remains underweight on European investment grade corporate debt as the European Central Bank continues to scale back on easing and yields remain low. We also remain underweight in UK credit. |
| Corporate High Yield | Overweight | We are keeping a modest overweight on U.S. high yield after earlier cuts. Fundamentals are still solid and relative value exists compared to other markets. Despite concerns over easy lending standards, US HY variable-rate bank loans offer attractive carry and lower price volatility compared to bonds. Though we would expect to reduce both asset classes at a later stage of the US economic cycle. Outside of the U.S., we are keeping European high yield at neutral given extremely low sovereign yields. |
Citi Private Bank as of November 28, 2018. Note 1: Green Arrow = Overweight; Dashed Line = Neutral; and Red Arrow = Underweight. Note 2: Based on a risk level 3 portfolio, which is designed for investors with a blended objective who require a mix of assets and seek a balance between investments that offer income and those positioned for a potentially higher return on investment. Risk level 3 may be appropriate for investors willing to subject their portfolio to additional risk for potential growth in addition to a level of income reflective of his/her stated risk tolerance. All allocations are subject to change at discretion of Citi Private Bank’s Global Investment Committee and Asset Allocation Team. There can be no assurance that these market conditions will remain in the future.
| Sector | View | Investment Rationale |
|---|---|---|
| Consumer Discretionary | Neutral | Solid economic growth, rising wages, and lower income taxes have supported the sector, but fears about slowing growth may now serve as a headwind. We prefer brands targeted to high-end consumers and internet retailing to traditional retailers. |
| Consumer Staples | Neutral | Consumer Staples have been rallying since early May. The sector often ranks among the least loved by investors, but its defensive nature has increased value during volatile times as earnings-per-share growth often remains positive even through periods of recession. |
| Energy | Overweight | Energy shares have tumbled with oil prices, but we think that they will rebound over time. That said, our commodity strategists think that the oil market may remain volatile as the U.S., Russia, and Saudi Arabia each have very different price preferences. |
| Financials | Neutral | While regulatory tailwinds have allowed banks to return more capital to shareholders in the form of higher dividends and buybacks, a flattening yield curve has suppressed net interest margins and trade risks could cap business confidence. For global investors, European Financials look to be in a more attractive stage of the cycle. |
| Health Care | Overweight | Healthcare is domestically centered and benefits from an aging population. The sector also has relatively attractive valuations, a high level of M&A, and tends to outperform during economic slowdowns. |
| Industrials | Overweight | Earnings growth and equity sector valuations are largely in-line with the broader market. Progress / setbacks on the trade front could create upside / downside risks. However, the Defense sector is likely to benefit from increased military spending. |
| Information Technology | Underweight | The sector benefits from buybacks, digital infrastructure spending, and pressures to automate as labor markets tighten. However, the uncertainty around US-China trade tensions and the potential for increased regulation (particularly in Europe) leave us cautious. |
| Materials | Neutral | The sector has lagged year-to-date. Materials upward earnings revisions have been slowing and trade developments have been weighing on the sector. Though the sector does tend to perform well late in the cycle. |
| Real Estate | Neutral | Real Estate is relatively insulated from trade concerns and exhibits defensive characteristics in periods of risk aversion. We prefer shorter leases, data centers, residential, lodging and self-storage. |
| Communication Services | Overweight | In September, the “Telecommunications” sector was renamed “Communication Services” and now incorporates heavy weights such as Alphabet and Facebook. We think that exposure to software and new media industries are attractive from both a fundamental and structural growth perspective but privacy issues are a concern. Meanwhile, Telecom offers high dividend yields and attractive valuations but its growth prospects are limited. |
| Utilities | Underweight | Utilities provide steady income, but typically lag the market as rates rise. Slow earnings growth, energy efficiency programs, and a relatively low dividend yield versus history provide headwinds. Within the sector, solar and gas investments represent potential opportunities. |
Citi Private Bank, Citi Investment Research and Analysis, and Citi Personal Wealth Management as of October 2018. Note 1: Green Arrow = Overweight; Dashed Line = Neutral; and Red Arrow = Underweight. All allocations are subject to change at discretion of Citi Private Bank’s Global Investment Committee and Asset Allocation Team. There can be no assurance that these market conditions will remain in the future.
Forecasts, Indicators, and Returns
| Region | GDP Growth | CPI Inflation | 10-Year Yields | Exchange Rate vs. USD | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | 2018 | 2019F | 2020F | 2018 | 2019F | 2020F | 2018 | 2019F | 2020F | 2018 | 2019F | 2020F |
| Global: Overall | 3.2 | 3.1 | 3.0 | 2.7 | 2.4 | 2.5 | N/A | N/A | N/A | N/A | N/A | N/A |
| Global: Based on PPP Weights | 3.8 | 3.6 | 3.6 | 3.2 | 3.3 | 3.2 | N/A | N/A | N/A | N/A | N/A | N/A |
| United States | 2.9 | 2.8 | 2.0 | 2.0 | 1.1 | 1.8 | 2.80 | 2.85 | 2.85 | N/A | N/A | N/A |
| Euro Area | 1.9 | 1.5 | 1.6 | 1.7 | 1.3 | 1.5 | 0.52 | 0.61 | 0.96 | 1.18 | 1.18 | 1.27 |
| Japan | 0.8 | 1.1 | 0.4 | 1.0 | 0.7 | 1.1 | 0.08 | 0.17 | 0.30 | 111 | 108 | 98 |
| Emerging Markets | 4.6 | 4.5 | 4.6 | 3.9 | 4.1 | 3.6 | N/A | N/A | N/A | N/A | N/A | N/A |
| China | 6.6 | 6.2 | 6.0 | 2.2 | 2.2 | 2.1 | 3.47 | 3.20 | 3.25 | 6.66 | 6.93 | 6.70 |
Citi Research Investment and Analysis (CIRA) and Citi Personal Wealth Management as of December 11, 2018. There can be no assurance that these projections will be met. Actual results may differ materially from the forecasts / estimates. Past performance is no guarantee of future results. The above table reflects the views of Citi Investment Research and Analysis (CIRA). CIRA forecasts take into consideration underlying economic, demographic, political, and psychological forces that drive market behavior. CIRA looks for trends and markets that offer potential as long-term investment ideas. You should carefully consider investment objectives, risk, charges, and expenses before investing.
| Early Returns (%) | Valuations | Dvd Yield | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity Index | Level | 2013 | 2014 | 2015 | 2016 | 2017 | Month to Date | Quarter to Date | Year to Date | Price to Earnings | 12-Month Forward P/E Ratio | Current (%) |
| Global | 471 | 20.3 | 2.1 | -4.3 | 5.6 | 21.6 | -4.1 | -10.2 | -8.3 | 15.5 | 14.2 | 2.6 |
| S&P 500 | 2,637 | 29.6 | 11.4 | -0.7 | 9.5 | 19.4 | -4.5 | -9.5 | -1.4 | 18.3 | 16.3 | 2.0 |
| DJIA | 24,370 | 26.5 | 7.5 | -2.2 | 13.4 | 25.1 | -4.6 | -7.9 | -1.4 | 16.5 | 15.5 | 2.3 |
| NASDAQ | 7,032 | 38.3 | 13.4 | 5.7 | 7.5 | 28.2 | -4.1 | -12.6 | 1.9 | 21.1 | 21.0 | 1.1 |
| Europe | 2,584 | 18.0 | 1.2 | 3.9 | 0.7 | 21.2 | -3.7 | -12.4 | -17.8 | 15.8 | 13.9 | 3.8 |
| Japan | 2,994 | 56.7 | 7.1 | 9.1 | 0.4 | 21.8 | -5.0 | -12.7 | -12.8 | 14.3 | 13.4 | 2.4 |
| Emerging Markets | 965 | -5.0 | -4.6 | -17.0 | 8.6 | 34.3 | -3.0 | -7.9 | -16.7 | 14.5 | 12.5 | 3.0 |
Citi Personal Wealth Management as of December 11, 2018. Past performance is no guarantee of future results. You should carefully consider investment objectives, risk, charges, and expenses before investing. Note: “Dvd” = Dividend; Global = MSCI All Country World Index (USD); Europe = Euro Stoxx 50 Price Index (USD); Japan = MSCI Japan (USD); Emerging Markets = MSCI Emerging Markets (USD). Most equity index returns shown here are based on a U.S. dollar basis. International returns for a U.S-based investor can differ significantly depending on the effects of foreign currency exchange.
| Fixed Income Returns (%) | Other Key Rates | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Bond Index | Yield to Maturity | 2013 | 2014 | 2015 | 2016 | 2017 | Month to Date | Quarter to Date | Year to Date | Instrument | % |
| Global | 2.21 | -0.1 | 7.9 | 0.9 | 3.3 | 2.1 | 0.7 | 0.7 | -0.2 | 10 Year U.S. Treasury | 2.88 |
| U.S. | 3.46 | -2.0 | 5.9 | 0.5 | 2.7 | 3.6 | 0.8 | 0.6 | -1.0 | 30 Year U.S. Treasury | 3.13 |
| Europe | 0.80 | 2.1 | 11.2 | 1.1 | 3.3 | 0.5 | 0.3 | 0.5 | 0.1 | 1 Year CD Rate | 1.32 |
| EM Sovereign | 6.15 | -6.2 | 7.1 | 0.6 | 9.6 | 9.8 | 0.9 | -1.5 | -4.9 | 30 Year Fixed Mortgage | 4.62 |
| U.S. High Yield | 7.51 | 7.2 | 1.8 | -5.6 | 17.8 | 7.0 | -0.2 | -2.6 | 0.0 | Prime Rate | 5.25 |
Citi Personal Wealth Management as of December 11, 2018. Note: Global = Citi U.S Broad Investment Grade Bond Index (USD); Europe = Citi Euro Broad Investment Grade Index (EUR); EM Sovereign = Citi Emerging Markets Government Bond Index (USD); and U.S. High Yield = Citi High-Yield Market Index (USD). Past performance is no guarantee of future results. You should carefully consider investment objectives, risk, charges and expenses before investing.
| Region / Index | Year-to-Date Return |
|---|---|
| Euro Investment Grade | 0.1% |
| U.S. High Yield | 0.0% |
| U.S. Investment Grade | -1.0% |
| United States (S&P 500) | -1.4% |
| EM Government Bond | -4.9% |
| Japan (MSCI) | -12.8% |
| Emerging Markets (MSCI) | -16.7% |
| Euro (Euro STOXX 50) | -17.8% |
Bloomberg and Citi Personal Wealth Management as of December 11, 2018. Note: Euro = Euro Stoxx 50 Price Index (USD); Japan = MSCI Japan (USD); Emerging Markets = MSCI Emerging Markets (USD). Most returns shown here are based on a U.S. dollar basis. International returns for a U.S.-based investor can differ significantly depending on the effects of foreign currency exchange. Note U.S. Broad Investment Grade = Citi U.S. Broad Investment Grade Bond Index (USD); Europe Broad Investment Grade = Citi Euro Broad Investment Grade Index (EUR); EM Government Bond = Citi Emerging Markets Government Bond Index (USD); and U.S. High Yield = Citi High-Yield Market Index (USD). Past performance is no guarantee of future results. You should carefully consider investment objectives, risks, charges, and expenses before investing.
| Economic Sectors | Year-to-Date Return |
|---|---|
| Healthcare | 11.8% |
| Utilities | 10.8% |
| Consumer Discretionary | 5.6% |
| Real Estate | 5.6% |
| Information Technology | 5.0% |
| Consumer Staples | -1.3% |
| Communication Services | -8.7% |
| Industrials | -9.3% |
| Energy | -10.4% |
| Financials | -11.0% |
| Materials | -13.1% |
Standard & Poor’s and Citi Personal Wealth Management as of December 11, 2018. Past performance is no guarantee of future results. You should carefully consider investment objectives, risks, charges, and expenses before investing.
Glossary
- The Citi Emerging Market Sovereign Bond Index (ESBI)
- includes Brady bonds and US dollar-denominated emerging market sovereign debt issued in the global, Yankee and Eurodollar markets, excluding loans. It is composed of debt in Africa, Asia, Europe and Latin America. We classify an emerging market as a sovereign with a maximum foreign debt rating of BBB+/Baa1 by S&P or Moody's. Defaulted issues are excluded.
- The Citi U.S. Broad Investment-Grade Bond Index (USBIG)
- tracks the performance of US Dollar-denominated bonds issued in the US investment-grade bond market. Introduced in 1985, the index includes US Treasury, government sponsored, collateralized, and corporate debt providing a reliable representation of the US investment-grade bond market. Sub-indices are available in any combination of asset class, maturity, and rating.
- The Citi World Broad Investment Grade Bond index
- is weighted by market capitalization and includes fixed rate Treasury, government sponsored, mortgage, asset backed, and investment grade (BBB–/Baa3) issues with a maturity of one year or longer and a minimum amount outstanding of $1 billion for Treasuries, $5 billion for mortgages, and $200 million for credit, asset-backed and government-sponsored issues.
- Corporate High Yield
- is measured against the Citigroup US High Yield Market Index, which includes all issues rated between CCC and BB+. The minimum issue size is $50 million.All issues are individually trader priced monthly.
- Corporate Investment Grade
- is measured against the Citi World Broad Investment Grade Index (WBIG) – Corporate, a subsector of the WBIG. This index includes fixed rate global investment grade corporate debt within the finance, industrial and utility sectors, denominated in the domestic currency. The index is rebalanced monthly.
- Developed Market Large Cap Equities
- are measured against the MSCI World Large Cap Index. This is a free-float adjusted, market-capitalization weighted index designed to measure the equity market performance of the large cap stocks in 23 developed markets. Large cap is defined as stocks representing roughly 70% of each market’s capitalization.
- Developed Market Small- and Mid-Cap Equities
- are measured against the MSCI World Small Cap Index, a capitalization-weighted index that measures small cap stock performance in 23 developed equity markets.
- Developed Sovereign
- is measured against the Citi World Government Bond Index (WGBI), which consists of the major global investment grade government bond markets and is composed of sovereign debt, denominated in the domestic currency. To join the WGBI, the market must satisfy size, credit and barriers-to-entry requirements. In order to ensure that the WGBI remains an investment grade benchmark, a minimum credit quality of BBB–/Baa3 by either S&P or Moody's is imposed. The index is rebalanced monthly.
- Dow Jones Industrial Average (DJIA)
- is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
- Emerging Markets Equities
- are measured against the MSCI Emerging Markets Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance of 22 emerging markets.
- Emerging Sovereign
- is measured against the Citi Emerging Market Sovereign Bond Index (ESBI). This index includes Brady bonds and US dollar-denominated emerging market sovereign debt issued in the global, Yankee and Eurodollar markets, excluding loans. It is composed of debt in Africa, Asia, Europe and Latin America. We classify an emerging market as a sovereign with a maximum foreign debt rating of BBB+/Baa1 by S&P or Moody's. Defaulted issues are excluded.
- The Euro Broad Investment-Grade Bond Index
- (EuroBIG) is a multi-asset benchmark for investment-grade, Euro-denominated fixed income bonds. Introduced in 1999, the EuroBIG includes government, government-sponsored, collateralized, and corporate debt.
- Europe Ex UK Equities
- are measured against the MSCI Europe ex UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure the performance of large cap stocks in each of Europe’s developed markets, excluding the United Kingdom.
- The EURO STOXX 50 Index
- covers 50 blue-chip stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
- Fed Funds Rate
- is the rate at which depository institutions (banks) lend reserve balances to other banks on an overnight basis. Reserves are excess balances held at the Federal Reserve to maintain reserve requirements. The fed funds rate is one of the most important interest rates in the U.S. economy since it affects monetary and financial conditions, which in turn have a bearing on critical aspects of the broad economy including employment, growth, and inflation. The Federal Open Market Committee (FOMC) that meets eight times a year, sets the fed funds rate, and uses open market operations to influence the supply of money to meet the target rate.
- Global Bonds
- are measured against the Citigroup Broad Investment Grade Bond. The index is weighted by market capitalization and includes fixed rate Treasury, government sponsored, mortgage, asset backed, and investment grade (BBB–/Baa3) issues with a maturity of one year or longer and a minimum amount outstanding of $1 billion for Treasuries, $5 billion for mortgages, and $200 million for credit, asset-backed and government-sponsored issues.
- Global Equities
- are measured against the MSCI All Country World Index, which represents 48 developed and emerging equity markets. Index components are weighted by market capitalization.
- Gross Domestic Product
- is the total value of goods produced and services provided in a country during one year.
- The High-Yield Market Index
- is a US Dollar-denominated index which measures the performance of high-yield debt issued by corporations domiciled in the US or Canada. Recognized as a broad measure of the North American high-yield market, the index includes cash-pay, deferred-interest securities, and debt issued under Rule 144A in unregistered form. Sub-indices are available in any combination of industry sector, maturity, and rating.
- Ifo World Economic Survey
- (WES) assesses worldwide economic trends by polling transnational as well as national organizations worldwide on current economic developments in their respective countries. Its results offer a rapid, up-to-date assessment of the economic situation prevailing around the world. In October 2018, 1,230 economic experts in 119 countries were polled.
- Leading Economic Indicators
- are measurable economic factors that change before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but they are not always accurate.
- MSCI All Country World Index
- captures all sources of equity returns in 23 developed and 23 emerging markets.
- MSCI Emerging Markets Index
- reflects performance of large and mid-cap stocks in roughly 20 emerging markets.
- MSCI Japan Large Cap Index
- is a free-float-adjusted market-capitalization-weighted index designed to measure large-cap stock performance in Japan.
- The NASDAQ
- is a composite index is a market-capitalization weighted index of more than 3,000 common equities listed on the Nasdaq stock exchange.
- The Nikkei 225
- is Japan’s leading index. It is a price-weighted index comprised of Japan’s top 225 blue-chip companies on the Tokyo stock exchange.
- Price-to-Earnings Ratio (P/E ratio)
- is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple. The P/E ratio can be calculated as: Market Value per Share / Earnings per Share
- S&P 500 Index
- is a capitalization-weighted index which includes a representative sample of 500 leading companies in leading industries of the US economy. Although the S&P 500 focuses on the large cap segment of the market, with over 80% coverage of US equities, it is also an ideal proxy for the total market.
- Trade Policy Uncertainty index
- is based solely on news data. These are derived using results from the Access World News database of over 2,000 US newspapers. The series is normalized to have a mean of 100 from 1985-2010.
