Citi Personal Wealth Management

Mid-Year Outlook 2019: Hope and Fear

Market Outlook: July 2019

Highlights

After a strong start to the year, financial markets are now being driven by both hope and fear. Hope that the U.S. can reach bi-lateral trade deals with key trading partners (China, Europe, Japan, etc.) and fear that the global economy may slow in the absence of such deals.

The global economy remains on solid footing, but faces downside risks. Citi’s economists are looking for global growth of about 2.9% year-on-year in both 2019 and 2020. However, global trade war simulations suggest that global growth could slow to a rate of 2.0% year-on-year in just 12-months’ time if trade tensions escalate on a broad scale. Under such a scenario, global growth forecasts for 2020 would be lowered dramatically.

We think that the bull market remains intact, but are recommending a more cautious stance over the near-term. While underweight U.S. stocks for now, Citi’s mid-year 2020 S&P 500 target of 3,000 still presents upside from today’s levels. Globally, Citi’s bear market checklists are signaling some caution, but are not yet worrisome. As such, Citi’s global equity strategy team thinks that global equities can return an additional 13% over the next two years.

A dramatic shift from the Federal Reserve helped to boost stocks in the first part of 2019. After once predicting three rate hikes in 2019, the Fed is now signaling that it may be willing to cut rates if the U.S. economy were to weaken due to trade tensions. However, monetary policy often operates with a significant lag and may not be sufficient to offset the immediate impact of tariffs. Our fixed income preferences remain geared towards U.S. Treasuries and short- and intermediate-duration corporate debt.