Citi Personal Wealth Management

Mid-Year Outlook 2018: Is this The End of “Easy”?

Market Outlook: July 2018

Highlights

The global economy remains on track, but appears a bit less synchronized. Growth in Europe has failed to match elevated expectations while the U.S. economy looks set to receive a boost from fiscal stimulus. Overall, Citi’s economists expect the global economy to advance by about 3.4% over the next two years. The word recession is not yet in our vocabulary.

We think that the bull market remains intact, but that the easy returns witnessed in 2017 will be difficult to repeat. Citi’s strategists believe that global equities could return an additional 9% by mid-year 2019 with the U.S. returning about 5%-6% when dividends are included (Citi’s mid-year 2019 target for the S&P 500 is 2,865). Citi Private Bank’s Global Investment Committee maintains a preference towards Europe ex United Kingdom, Japan, and Emerging Markets due to lower valuations. Citi maintains a neutral stance on U.S. shares.

Developed market central banks are beginning to shift away from easy monetary policy with the Federal Reserve leading the charge. Even though the Fed has recently signaled two additional rate hikes this year, Citi is still predicting just one more rate hike as subdued inflation creates little urgency for the central bank to accelerate their gradual pace. Citi Private Bank’s fixed income preferences remain slanted towards U.S. high yield, U.S. municipals, and emerging market debt. Short-term U.S. Treasuries also appear to be a better alternative than simply holding cash.

While maintaining a positive outlook for risk assets in 2018, we would not be surprised to see further volatility. Global earnings growth is likely to serve as a solid underpinning to equity markets this year with U.S. earnings-per-share (EPS) on track to rise about 20% this year. However, mid-term elections in the U.S., rising interest rates, trade tensions, and geopolitics could each serve as catalysts for further volatility. Importantly, intra-year declines often tell us very little about how the year will end and bear markets are uncommon outside of recession.

Shawn Snyder Head of Investment Strategy,
Citi Personal Wealth Management

Global Economy: Still Expanding

The pace of global growth has eased a bit, but remains on track.

In early 2016, the global economy started to accelerate with most developed and emerging market economies picking up steam. This synchronized global growth helped to boost global equity markets and suppress market volatility in 2017, but that has not been the case in the first half of 2018.

With global purchasing managers’ indices (PMIs) slipping a bit, investor sentiment has come down from euphoric levels (see Figure 1). Combined with concerns about rising interest rates and ongoing trade negotiations, volatility has returned and global equity returns are just slightly positive year-to-date.

Figure 1: Global Purchasing Manager’s Index vs. MSCI All Country World

However, while the pace of global growth may have slowed some, the global economic recovery remains intact.

Citi’s economists have acknowledged downside risks due to global trade, but believe that global growth should advance by about 3.4% this year (see Figure 2). In theU.S., the economy grew by just 2.2% in the first quarter of 2018, but tax cuts and delayed tax returns will likely boost growth considerably in the second quarter(currently on track for 4.1% annualized growth). Away from the U.S., both Europe and Japan look poised for modest growth, but at a slower pace than in 2017. In Europe, real gross domestic product (GDP) should come in above 2.0% while Japan looks likely to see growth in the sub-1.0% range. Emerging markets are expected to remain a significant contributor to global growth with emerging economies expanding by 4.8%.

Figure 2: Citi’s Global GDP Forecasts

Region	2017	2018	2019
Global	3.3%	3.4%	3.4%
United States	2.3%	2.9%	2.8%
Euro Area	2.5%	2.2%	1.9%
Japan	1.7%	0.9%	1.0%
China	6.9%	6.7%	6.4%
Emerging Markets	4.7%	4.8%	4.8%

This table shows Citigroup's Regional GDP forecasts. In 2018, global growth is expected to rise by 3.4%. In the U.S., 2.9%, in Europe 2.2%, in Japan 0.9%, in China 6.7%, and in emerging markets 4.8%.

Sources:
Citi Research Investment and Analysis and Citi Personal Wealth Management as of May 23, 2018. All forecasts are expressions of opinion, are not a guarantee of future results, and are subject to change without notice.

With significant fiscal stimulus (tax cuts and increased federal spending) being passed in the U.S., we expect growth to remain solid over the next couple of years. However, the U.S. economic recovery has now become the second longest in U.S. history. The longevity of the U.S. business cycle does not necessarily mean that it cannot continue, but labor markets are becoming increasing tight and the Federal Reserve is likely to continue upon its path of rate normalization.

Without a boost to the labor force or productivity, it may become difficult to maintain a growth rate of 3.0% once the fiscal stimulus starts to fade. We are not predicting a recession in 2020, but for some market participants it may feel like one as growth starts to slow beyond 2019. We should also note that U.S. trade negotiations remain fluid. While not our base case, there’s a chance that a slowdown in trade could weigh modestly on growth estimates moving forward (few tenths of a percent).

Global Stocks: Late Cycle

We expect the bull market to continue, but more modest gains should be expected.

After a near picture perfect 2017, global equity markets have struggled to find direction in 2018. Thus far, returns for most regions have either been flat or slightly positive year-to-date. It has not been a smooth ride.

As we suggested in our initial outlook for 2018, volatility has returned with fears of rising interest rates, global trade tensions, and other geopolitical concerns weighing on investor sentiment. However, a bright spot has been U.S. corporate profits which appear to be on track to rise by about 20% year-on-year. With equity prices highly correlated to profits, this could potentially provide an underpinning to equity markets this year (see Figure 3).

Figure 3. S&P 500 Earnings-Per-Share vs. S&P 500 Stock Price Index

While we think that the uptick in U.S. earnings due to the corporate tax cut will lead to positive equity returns this year, we do not expect returns to match corporate profits growth one-for-one. We believe that the equity market quickly priced in the tax cut benefits in late 2017 with the S&P 500 returning nearly 20% while corporate profits rose by just 10% (see Figure 4).

Figure 4. 2017 Regional Earnings-Per-Share Growth vs. Index Returns

This leaves us believing that U.S. equity returns will likely be more muted this year as elevated expectations need to now be confirmed. Citi’s year-end 2018 target for the S&P 500 remains 2,800 (though an overshoot remains possible) and Citi Private Bank’s Global Investment Committee remains neutral on U.S. shares.

Regional preferences remain geared toward non-U.S. markets where valuations appear more attractive and business cycles aren’t quite as mature. Favored regions include Europe ex UK, Japan, and Emerging Markets. Even though emerging markets have disappointed this year due to the strengthening U.S. dollar, we think that it represents an opportunity over the longer-term (see Figure 5). We also expect to see European shares rebound as growth fears prove to be overblown.

Figure 5. MSCI Emerging Markets Performance Relative to MSCI Developed Markets

Global Fixed Income: Rising Rates

Central banks around the world remain fairly accommodative, while the Fed tightens

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 Figure 6 shows, the Fed intentionally pushed interest rates to a level below what nominal gross domestic product (GDP) would suggest. While we don’t expect rates to rise suddenly, an uptick in growth and inflation should lead to modestly higher interest rates over time.

Figure 6. 10-Year U.S. Treasury Yield vs. Nominal U.S. Gross Domestic Product

As the U.S. economy continues to recover and the Fed moves away from extraordinarily accommodative monetary policy, we also expect the U.S. yield curve to flatten further over time. While an inverted yield curve (considered to be a possible signal of a pending recession) remains a possibility in the years ahead, we are not yet at a worrisome level. In fact, based on where the yield curve is currently, a recession typically does not occur for another 30 months or so. We should also point out that in the late 1990s, the yield curve hovered around inversion for many years before a recession occurred.

In Europe, growth and inflation are more subdued than in the U.S., but the European Central Bank (ECB) has announced that it will end its quantitative easing (QE) program by the end of this year (see Figure 7). Assuming conditions warrant, the ECB will likely begin to hike rates in the second half of 2019.

Figure 7. Central Bank Balance Sheets (% of GDP)

While this leaves Citi expecting to see higher interest rates across both developed and emerging markets, we still think that fixed income should remain a key component of balanced portfolios as a diversifier.

As such, Citi’s Private Bank sees opportunities in several areas. In the U.S., overweights include high yield, municipals, and floating rate fixed income. In addition, short-term investment grade fixed income is now an attractive asset class relative to cash. The Committee remains neutral on long-term U.S. Treasuries.

Away from the U.S., preferences include emerging markets debt due to higher relative yields and a better economic backdrop. In Europe, the Committee maintains a neutral stance towards both investment grade corporate debt and corporate high yield. In terms of European sovereign bonds, the Committee remains deeply underweight due to extremely low yields.

Risks to the Outlook: Policy Uncertainty

Trade, foreign, and monetary policy each present risks

One of the defining differences between 2017 and 2018 is the rise of geopolitical risk. Policy missteps remain possible on several fronts. From the market’s perspective, U.S. trade policy probably represents the largest element of uncertainty (see Figure 8).

Figure 8. U.S. Trade Policy Uncertainty Index

The situation remains fluid with trade negotiations likely to be ongoing for some time on multiple fronts (Canada, Mexico, Japan, the European Union, and China). While some progress has been made on the re-write of the North American Free Trade Agreement (NAFTA), it looks increasingly likely to slip into 2019. While trade deals are often contentious and complex, this does not mean that they do not happen. As such, an abandonment of NAFTA is not our base case, but a lengthier time horizon may create some complications with the Mexican Presidential election and U.S. mid-term elections just around the corner.

While not the most sophisticated analysis, a simple look at U.S. soybean production provides an example of how breakdowns in trade can negatively impact both countries. Even though China is the world’s fourth largest producer of soybeans, the rapid growth in their economy has turned them into the world’s largest importer (of which the U.S. supplies about 90%).

With agricultural goods serving as the United States’ largest export to China (agricultural exports were $21 billion in 2016 while aircraft accounted for $15 billion), a Chinese imposed tariff of 25% on soybeans would most likely negatively impact the regional economies in the Midwest. However, it would also hurt China.

While perhaps counter-intuitive, China is expected to import a record 97 million tons of soybeans in 2017/2018 to feed its livestock (which includes the world’s largest pig herd). If enacted, the tariff could lead to food price inflation in its own country (which would weigh on its own domestic livestock industry).

While the proposed tariffs may only account for a few tenths of a percent of nominal GDP in the affected countries, these trade linkages demonstrate the very real impacts that could be felt regionally. On the flipside, if agreements can be reached that increase market access and lower international tariffs, regional (and national) growth could be boosted. It remains to be seen which scenario will ultimately prevail.

Away from trade policy, monetary policy uncertainty is much more subdued, but still relevant. With the U.S. economy currently on track for 3.8% annualized growth in the second quarter; the Fed will likely feel comfortable with additional rate hikes this year. While their path has been widely telegraphed, there’s always a chance that an unexpected jump in the inflation outlook could force the Fed to adopt an even more aggressive tone (not our base case).

Citi Private Bank’s Asset Class Views

Citi Private Bank’s Asset Class Views (Equities)

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 reported a 24% year/year EPS gain in 1Q, widespread, beyond the energy sector. Gains should continue at only a slightly slower pace in coming quarters. These EPS gains should more than offset a valuation contraction this year after two years of strong equity market appreciation.
European Large Cap	Overweight	European economic growth fears are overblown and valuations remain attractive. Shares have lagged behind EPS gains on global trade fears. While regional political risks remain, they don’t overwhelm positives. Equity dividend yields easily eclipse corporate bond yields in the region by over 150 bps. We remain overweight in Eurozone large cap equities, neutral on UK large cap equities due to Brexit risk.
Japan Large Cap	Overweight	Japan’s economy and equity markets have performed decently despite a volatile yen, suggesting underlying vigor. Despite market worries over a political scandal, we see the Bank of Japan’s policy as remaining easier for longer than other central banks.
Developed Market Small and Mid-Cap (SMID)	Underweight	Overweight Eurozone SMID, which may see solid performance along with large cap shares. Remain at a modest underweight UK SMID shares as currency volatility on Brexit fears has raised inflation and harmed real incomes, impacting domestic- oriented firms. Remain neutral (fully-weighted) US SMID.
Emerging Asia	Overweight	EM Asia remains one of our largest relative overweight positions. China’s trade connections to the world and domestic economic strength suggest it will endure through U.S. trade threats. It appears committed to opening its markets with or without U.S. prodding. The Fed and U.S. policy could still cause a setback in Asia broadly, but solid domestic economic growth and low valuations are supportive.
Emerging EMEA	Overweight	Emerging EMEA economies are diverse and idiosyncratic. While the emerging markets asset class is appealing, certain smaller markets may be less appealing in the region.
Emerging Latin America	Overweight	Remain overweght overall. Performance has been strong in LatAm since 2016 and the latest rout in global risk assets creates even more attractive valuations. The cyclical economic outlook is solid, though some local political risks are an issue this year in Mexico (neutral) and Brazil (overweight).

This table provides the firm's view on various regional equities. It also provides a brief description of the firm's investment rationale.

Sources:
Citi Private Bank as of May 23, 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.

Citi Private Bank’s Asset Class Views (Fixed Income)

Asset Class: Fixed Income	View	Investment Rationale
U.S. Sovereign Bonds	Overweight	U.S. cash is now yielding more than long-term developed market (ex-U.S.) government bonds. We maintain an overweight in short- and intermediate-term US Treasuries rather than holding an overweight in “global cash.” For taxable US investors, this can continue to be better implemented with municipals. We remain neutral in long-term US Treasuries.
European Sovereign Bonds	Underweight	Negative policy rates and slow economic growth have left core European bond yields historically low through the cycle. Though growth is now solid, long-dated German Bunds remain at a low 0.30%. With interest rates in the region more broadly also still so low, we remain deeply underweight sovereign bonds in Europe.
Emerging Market (EM) Sovereign Bonds	Overweight	Higher relative yields, a better fundamental backdrop in EM economies and a USD that is likely to be near the end of a 6- year bull market should all be supportive for EM bonds. We prefer Latin America (hard currency & local), as well as Asian and EMEA local currency bonds. Recent cheapening in markets on the heels of a counter-trend USD rally should be looked at opportunistically.
Corporate Investment Grade	Overweight	Citi remains overweight U.S. investment grade (IG) corporate debt. Valuations have become more compelling as yields are their highest since 2011. For U.S. taxpayers, municipal debt has risen in yield to attractive levels. Across the pond, the ECB may eventually scale back easing and yields on IG corporate debt remain low. This leaves the Committee underweight on European IG corporate debt.
Corporate High Yield	Overweight	The GIC maintains a modest overweight in the U.S. Fundamentals are still solid and relative value exists compared to other markets. However, spreads have tightened substantially since last year and are close to their 2014 post- crisis tights. Selectivity remains key. In Europe, low yields fueled by ECB asset purchases forced investors to move down in credit quality to euro high yield (HY). With yields now at historically low levels and tapering on the horizon, we keep euro HY at a neutral.

This table provides the firm's view on various regional fixed income investments. It also provides a brief description of the firm's investment rationale.

Sources:
Citi Private Bank as of May 23, 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.

Citi Private Bank’s S&P 500 Sector Views

Asset Class: Fixed Income	View	Investment Rationale
Consumer Discretionary	Overweight	Retail subsector has outperformed the S&P, but it has an outsized weighting due to a large e- commerce retailer. Constructive in the Consumer Services subsector as more jobs and higher wages should support consumption. Valuations are high, but not yet extreme.
Consumer Staples	Neutral	Neutral as defensive strategy to limit risk of policy uncertainty and a potential hit to consumer confidence. Selectivity to names with strong dividends and ability to grow the dividend, capture limited upside relative to other sectors.
Energy	Overweight	A base support for $70 West Texas Intermediate (WTI) crude oil could set the foundation for a more balanced market in 2018. With equity shares lagging earnings gains, there could be room for additional upside. Prefer Big Oil and select servicers as balance sheets have been reconstructed and assets divested in order to bump Return on Equity.
Financials	Neutral	Banks are under owned, benefit from higher rates, and are positioned for better growth from a better economic outlook. However, a flattening yield curve and a cycle-high Price-to-Book ratio are offsetting an otherwise positive backdrop.
Health Care	Overweight	An aging population will drive growth and earnings may be boosted by innovations at drug makers and medical devices. Healthcare equipment & services should benefit from U.S. tax reform. Biotech and Pharma are facing increasing disruption from Tech companies.
Industrials	Overweight	Defense sector remains attractive on the back of an expected increase in defense and military spending. Aircraft manufacturers and Transports could be hurt under restrictive trade policies.
Information Technology	Overweight	Artificial intelligence, cloud computing, and virtual / augmented reality are major thematic drivers for the industry. Largest players continue to consolidate in e-commerce, fundamentals remain strong among Internet of Things (IoT) and valuations are reasonable.
Materials	Overweight	A more lax corporate tax structure supports most material companies, as well as reduced emission standards.
Real Estate	Neutral	The threat of higher interest rates has dampened sector expectations – earnings have taken a dip as Lodging industry has seen weak demand and decelerating growth in Retail fundamentals. Buy-side surveys show negative sentiment for 2018.
Tele-communications	Neutral	Most dividend paying names are likely to underperform, independent of new administration policy.
Utilities	Underweight	Negative on the sector as weak forward earnings growth and higher bond yields could pressure price performance. We like Dividend Growers vs. pure high Dividend Yielders.

This table provides the firm's view on the various S&P 500 sectors . It also provides a brief description of the firm's investment rationale.

Sources:
Citi Private Bank as of May 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

Global Economic Forecasts

Region	GDP Growth			CPI Inflation			10-Year Yields			Exchange Rate vs. USD
Year	2017	2018F	2019F	2017	2018F	2019F	2017	2018F	2019F	2017	2018F	2019F
Global: Overall	3.3	3.4	3.4	2.4	2.7	2.5	N/A	N/A	N/A	N/A	N/A	N/A
Global: Based on PPP Weights	3.8	3.9	3.9	3.0	3.2	3.1	N/A	N/A	N/A	N/A	N/A	N/A
United States	2.3	2.9	2.8	1.7	2.2	1.8	2.45	2.66	2.73	N/A	N/A	N/A
Euro Area	2.5	2.2	1.9	1.5	1.7	1.5	0.42	0.66	0.86	1.13	1.21	1.31
Japan	1.7	0.9	1.0	0.5	1.3	0.9	0.06	0.06	0.08	112	108	101
Emerging Markets	4.7	4.8	4.8	3.6	3.7	3.6	N/A	N/A	N/A	N/A	N/A	N/A
China	6.9	6.7	6.4	1.6	2.1	2.1	3.51	3.73	3.66	6.76	6.34	6.31

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This table provides the firm's global economic forecasts. Forecasts include gross domestic product, inflation, 10-year U.S. Treasury yields, and exchange rates versus the U.S. dollar.

Sources:
Citi Research Investment and Analysis (CIRA) and Citi Personal Wealth Management as of May 23, 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.

Global Equity Market Returns and Valuations

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 (%)
		Early Returns (%)								Valuations		Dvd Yield
Global	519	20.3	2.1	-4.3	5.6	21.6	2.0	2.6	1.2	18.2	15.7	2.4
S&P 500	2,779	29.6	11.4	-0.7	9.5	19.4	2.7	5.2	3.9	21.2	17.5	1.9
DJIA	25,317	26.5	7.5	-2.2	13.4	25.1	3.7	5.0	2.4	19.1	16.7	2.1
NASDAQ	7,646	38.3	13.4	5.7	7.5	28.2	2.7	8.2	10.8	24.1	23.1	1.0
Europe	3,029	18.0	1.2	3.9	0.7	21.2	2.0	-1.9	-3.6	15.8	13.9	3.5
Japan	3,468	56.7	7.1	9.1	0.4	21.8	1.4	1.0	1.0	14.3	13.4	2.1
Emerging Markets	1,135	-5.0	-4.6	-17.0	8.6	34.3	1.3	-3.0	-2.0	14.5	12.5	2.4

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This table shows the market returns for regional equities. Data also include regional price-to-earnings ratios and current dividend yields.

Sources:
Citi Personal Wealth Management as of June 8, 2018. Past performance is no guarantee of future results. You should carefully consider investment objectives, risk, charges, and expenses before investing. 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.

Global Bond Market Returns and Other Key Rates

Bond Index	Yield to Maturity	2013	2014	2015	2016	2017	Month to Date	Quarter to Date	Year to Date	Instrument	%
		Fixed Income Returns (%)								Other Key Rates
Global	2.11	-0.1	7.9	0.9	3.3	2.1	-0.6	-0.9	-1.2	10 Year U.S.	2.95
U.S.	3.33	-2.0	5.9	0.5	2.7	3.6	-0.6	-0.6	-2.1	30 Year U.S.	3.09
Europe	0.82	2.1	11.2	1.1	3.3	0.5	-0.7	-1.7	-0.9	1 Year CD Rate	0.98
EM Sovereign	5.72	-6.2	7.1	0.6	9.6	9.8	-0.6	-3.2	-5.2	30 Year Fixed Mortgage	4.46
U.S. High Yield	6.64	7.2	1.8	-5.6	17.8	7.0	0.5	1.2	0.5	Prime Rate	4.75

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This table shows fixed income market returns from 2013 to 2018 year-to-date. It also includes other key fixed income rates like CD rates and 30-year mortgage rates.

Sources:
Citi Personal Wealth Management as of June 8, 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.

Global Asset Class Returns (Sorted by Performance)

Region / Index	Year-to-Date Return
United States (S&P 500)	3.9%
Japan (MSCI)	1.0%
U.S. High Yield	0.5%
Euro Investment Grade	-0.9%
Emergin Markets (MCSI)	-2.0%
U.S. Investment Grade	-2.1%
Euro (Euro STOXX 50)	-3.6%
EM Government Bond	-5.2%

This table shows the year-to-date returns of various global asset classes including both equities and fixed income.

Sources:
Bloomberg and Citi Personal Wealth Management as of June 8, 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.

S&P 500 Sector Total Returns (Sorted by Performance)

Economic Sectors	Year-to-Date Return
Information Technology	14.2%
Consumer Discretionary	11.9%
Energy	7.4%
Healthcare	3.5%
Industrials	1.3%
Financials	1.1%
Materials	1.1%
Utilities	-6.8%
Telecommunications	-7.1%
Consumer Staples	-10.4%

This table shows the year-to-date returns for the S&P 500 sectors.

Sources:
Bloomberg and Citi Personal Wealth Management as of June 8, 2018. Past performance is no guarantee of future results. You should carefully consider investment objectives, risks, charges, and expenses before investing.

Glossary

The Citi Economic Surprise Indexes: Objective and quantitative measures of economic news, covering all G10 economies. A positive reading of the Economic Surprise Index suggests that economic releases have on balance beating consensus.
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: 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.
Correlation: The extent to which the values of different types of investments move in tandem with one another in response to changing economic and market conditions. Correlation is measured on a scale of -1 to +1. Investments with a correlation of +.5 or more tend to rise and fall in value at the same time, while investments with a negative correlation of -.5 to -1 are more likely to gain or lose value in opposing cycles.
Corporate high yield: 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: 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: 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: Measured against the MSCI World Small Cap Index, a capitalization-weighted index that measures small cap stock performance in 23 developed equity markets. imposed. The index is rebalanced monthly.
Dow Jones Industrial Average (DJIA): A price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Emerging markets equities: 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: 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): 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: 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. 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: 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: 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: The total value of goods produced and services provided in a country during one year.
The High-Yield Market Index: 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.
Leading economic indicators: 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: A free-float-adjusted market-capitalization-weighted index designed to measure large-cap stock performance in Japan.
The NASDAQ: 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: 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): 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: 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.
The unemployment rate: A measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate.

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