A November to Remember

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Monthly Market Snapshot: November 2020

Highlights

Globally, stocks surged in November as positive vaccine news and fading U.S. political uncertainty. In the United States, the S&P 500 soared 10.8% while the Dow Jones jumped 11.8%. The tech-heavy NASDAQ rose 11.8%. European shares ripped 21.2% higher as the number of new COVID-19 cases in the region seemingly plateaued and restrictions looked set to ease. The 10-year U.S. Treasury yield remained little changed at 0.84%.

Vaccine developments have bolstered confidence that there is a light at the end of the tunnel. Barring an unexpected setback, a broad distribution of vaccines in 2021 should help the global economy to more fully recover. Combined with the a base case of a divided U.S. government, this boosted risk assets significantly. Some of next year’s returns might have been pulled forward.

Citi Private Bank’s Global Investment Committee maintains an overweight on global equities, particularly on non-U.S. large cap shares (Japan, Europe, and the UK) and small-cap shares. The Committee maintains an underweight on global fixed income, particularly European and Japanese sovereign bonds and short-duration U.S. Treasuries. The GIC is now neutral on emerging market debt.

Shawn Snyder Head of Investment Strategy,
Citi Personal Wealth Management

Regional Outlook

United States

Economy (Recovering)

The U.S. economy continues to recover with real GDP in the fourth quarter looking like it will range between 4.0% to 6.0% annualized. Growth may moderate further in the first quarter of 2021 as COVID-19 restrictions weigh on growth, but vaccines should lead to above trend growth in 2021 with annual GDP clocking in between 4% to 5.0%. Additional fiscal stimulus from Congress appears to be forthcoming, perhaps by December 18th. This should help to support growth.

Stocks (Overweight SMID)

Citi Private Bank’s Global Investment Committee is neutral on U.S. large-cap stocks, but remains overweight U.S. small- and mid-cap shares (SMID). Significant stimulus from the Fed and U.S. congress boosted markets after a significant drop in March, but valuations are no longer cheap. We remain focused on areas of the market that still offer some value – particularly Cyclicals sectors like Industrials, Financials, and Real Estate Investment Trusts Securities (REITS).

Bonds (Underweight)

With yields quite low, the GIC is underweight short-duration and neutral on intermediate-duration and long-duration U.S. Treasuries. The Committee remains overweight Treasury-Inflation Protected Securities and U.S. residential- and commercial-mortgage REITS. Overall, we expect some rebound in rates in a 2021 cyclical recovery. For taxable U.S. investors, muni yields are relatively attractive.

Europe and Japan

Economy (Europe: Recovering / Japan: Recovering)

In Europe, a negative real GDP print in the fourth quarter is possible, but vaccines should lead to a material increase in the pace of economic activity in the second half of 2021. This should allow the European Union’s economy to grow by about 3.5% to 4.0% next year. In Japan, Citi’s economists expect continued economic expansion in 2021 after a temporary pause in the first quarter following a recent COVID-19 surge. For the full year, an annual growth rate of 2.0% seems feasible.

Stocks (Europe: Overweight; Overweight SMID / Japan: Overweight; Overweight SMID)

The GIC has moved to an overweight on both Europe and Japan large-caps, as well as small- and mid-cap stocks (SMID). COVID infections are holding back the near-term pace of the recovery, but the European Union appears poised to benefit from a global trade recovery and cheaper valuations relative to U.S. large cap shares. Japanese large cap stocks also appear poised to benefit from a trade and subsequent upward earnings-per-share (EPS) revisions in the coming year.

Bonds (Underweight)

The GIC is maintaining a deep underweight on both European and Japanese sovereign bonds.

Emerging Markets

Economy (Recovering)

Citi’s economists expect emerging market economies to rebound as well with growth possibly rising from -2.0% to 6.2%. Although we should note that vaccine rollouts in EM may take longer than in advanced economies. In China, growth looks set to rise from 2.1% in 2020 to 8.2% in 2021 as household consumption drives growth.

Stocks (Overweight)

The GIC is overweight emerging markets (Asia and Latin America). The GIC remains optimistic on Asian consumption, technology and healthcare themes. Latin America could perform well coming out of this crisis. However, we maintain a cautious stance longer-term.

Bonds (Neutral)

We are neutral emerging market fixed income as U.S. dollar-denominated debt valuations reflect poor fundamentals, but also long-term opportunities and attractive risk adjusted returns.

U.S. Stock Market and Economic Forecasts

Figure 1: U.S. Stock Market and Economic Forecasts

Indicator	2019A	2020F	2021F
S&P 500 Target	3,231	3,300	3,800
S&P 500 P/E Ratio	18.97x	25.87x	21.96x
S&P 500 EPS Growth	2.0%	-16.8%	21.9%
GDP (YoY)	2.2%	-3.4%	5.1%
Inflation (YoY)	1.5%	1.2%	1.9%
Unemployment Rate	3.7%	8.1%	5.9%

This table shows Citi's U.S. stock market and economic forecasts. Indicators include year-end targets for the S&P 500, Price-to-Earnings ratios, Earnings-Per-Share growth rates, gross domestic product, inflation, and the unemployment rate.

Sources: Citi Research and Citi Personal Wealth Management as of October 31, 2020. Note 1: The S&P 500 P/E ratio is based on trailing four-quarter S&P 500 operating earnings-per-share. Note 2: “A” means actual; “F” means forecast. There can be no assurance that these projections will be met. Actual results may differ materially from the forecasts/estimates. 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, risks, charges, and expenses before investing.

Global Economic Forecasts

Figure 2: Global Economic Forecasts

Region	GDP Growth			CPI Inflation			10-Year Yields			Exchange Rate vs. USD
	2020F	2021F	2022F	2020F	2021F	2022F	2020F	2021F	2022F	2020F	2021F	2022F
Global	-3.9	5.0	3.6	2.0	2.2	2.4	N/A	N/A	N/A	N/A	N/A	N/A
Based on PPP Weights	-3.7	5.5	3.7	2.8	3.2	3.3	N/A	N/A	N/A	N/A	N/A	N/A
Industrial Countries	-5.3	4.1	2.8	0.7	1.3	1.7	N/A	N/A	N/A	N/A	N/A	N/A
United States	-3.4	5.1	1.6	1.2	1.9	2.0	1.25	1.25	1.25	N/A	N/A	N/A
Japan	-5.1	2.0	2.3	0.1	-0.3	0.6	0.03	0.05	0.05	107	107	107
Euro Area	-7.3	3.6	4.3	0.2	0.7	1.3	-0.50	-0.40	-0.17	1.15	1.22	1.25
Emerging Markets	-2.0	6.2	4.5	3.7	3.3	3.4	N/A	N/A	N/A	N/A	N/A	N/A
China	2.1	8.2	5.5	2.6	1.2	2.2	3.00	3.21	3.23	6.89	6.30	6.05

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This table shows Citi's forecasts for gross domestic product, consumer prices, 10-year sovereign bond yields, and exchange rates versus the U.S. dollar across various regions.

Market Indicators

Figure 3: Equity Markets

Equities	Level	2015	2016	2017	2018	2019	MTD	QTD	YTD	P/E	12-Month Forward P/E	Current
		Equity Returns (%)								Valuations		Div. Yld. (%)
Global	618	-4.3	5.6	21.6	-11.2	24.0	12.2	9.4	9.4	31.4	24.3	1.9
S&P 500	3622	-0.7	9.5	19.4	-6.2	28.9	10.8	7.7	12.1	29.0	26.2	1.6
DJIA	29639	-2.2	13.4	25.1	-5.6	22.3	11.8	6.7	3.9	25.2	24.8	2.1
NASDAQ	12199	5.7	7.5	28.2	-3.9	35.2	11.8	9.7	36.0	74.2	40.5	0.8
Europe	3120	3.9	0.7	21.2	-18.5	22.5	21.2	11.6	-0.6	52.0	23.1	2.2
Japan	3706	9.1	0.4	21.8	-14.5	17.1	12.5	10.7	7.8	29.2	22.7	2.1
Emerging Markets	1205	-17.0	8.6	34.3	-16.6	15.4	9.2	11.4	8.1	24.7	19.5	2.0

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This table shows returns for various equity markets, including returns from the previous 5 years and current year period-to-date returns. It also shows current valuations for these markets.

Note: 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.

Figure 4: Fixed Income Markets

Fixed Income	YTM	2015	2016	2017	2018	2019	MTD	QTD	YTD	Instrument	Current (%)
		Fixed Income Returns (%)								Other Key Rates
Global	0.57	0.9	3.3	2.1	0.5	7.1	0.6	0.6	5.5	10-Yr. U.S. Treasury	0.84
U.S.	1.06	0.5	2.7	3.6	0.0	8.9	1.1	0.6	7.6	30-Yr. U.S. Treasury	1.57
Europe	-0.12	1.1	3.3	0.5	0.5	6.0	0.3	1.1	3.9	1-Yr. CD Rate	0.41
EM Sovereign	4.36	0.6	9.6	9.8	-4.1	14.8	4.2	3.8	3.4	30-Yr. Fixed Mortgage	2.94
U.S. High Yield	5.40	-5.6	17.8	7.0	-2.1	14.1	3.9	4.4	4.2	Prime Rate	3.25

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This table shows returns for various fixed income markets. It also includes other key rates like the 10-year U.S. Treasury, 30-year U.S. Treasury, 1-year CD rate, and 30-year fixed mortgage rate.

Note: Global = Citi World BIG Index (LCL); U.S. = 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).

Asset Class Returns (Sorted by Performance)

Figure 5: ... — Figure 5: Global Asset Class Returns (Year-to-Date)

Figure 6: ... — Figure 6: S&P 500 Sector Total Returns (Year-to-Date)

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Highlights

Regional Outlook

U.S. Stock Market and Economic Forecasts

Global Economic Forecasts

Market Indicators

Asset Class Returns (Sorted by Performance)

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