Citi Personal Wealth Management

Outlook 2019: Finding The Light

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.