Outlook 2023 - Citi Wealth

Our Expectations

Global GDP growth: 1.7% in 2023, 2.3% in 2024
Shallow 2023 recession in the US, worse in Europe and UK
China to see recovery as COVID restrictions ease
US inflation falls to 3.5% by end-2023 and 2.5% by end-2024
Global earnings per share to fall 10% in 2023
Fed to start cutting interest rates by second half of 2023
Among the greatest risks to our outlook would be persistent 1970s-style inflation
By contrast, the US might avoid recession if inflation drops faster than expected
Other improbable risks include US-China military escalation or complete trade breakdown

Putting Cash to Work in a Higher Interest Rate Environment

Rising rates and volatile markets unsettled investors in 2022. The new higher rate environment creates potential opportunities to seek income across asset classes.

Difficult market conditions in 2022 increased the temptation to sit on excess cash
Sitting on excess cash is a risky strategy, which almost always leads to missing out on recoveries
We believe 2022's turmoil has created more viable opportunities for putting cash to work
Our expectation is for interest rates to peak and inflation to fade over time
We favor various short- and intermediate-term US dollar denominated bonds
We also like dividend grower equities from resilient industries

Unstoppable Trends Are Changing the World

Unstoppable Trends are long-term phenomena that are transforming how we live and do business. We seek portfolio exposure to these powerful forces.

G2 polarization intensifies
The US-China technology trade war increases the challenges facing investors. But it also creates portfolio diversification potential
Greening the world: Energy security is vital
Fossil fuel energy dependence threatens economic growth and national security. We believe this strengthens the case for the clean energy transition and for positioning portfolios accordingly
Deepening digitization
We highlight a range of attractive areas including semiconductors and robotics & automation, accessible via both public market and alternative strategies
Seeking to boost portfolio immunity with healthcare
Aging populations and the expanding global middle class will likely boost healthcare demand long-term. Among our favored areas are biologics, life science tools, value-based care and agetech

Building Dynamic Portfolios

Near-term, we emphasize quality, such as short-term US dollar investment grade fixed income
Likewise, we favor more defensive equities, including dividend growers
For suitable investors, capital markets and alternative strategies also offer potential opportunities to put cash to work
As interest rates peak, we expect to shift first to quality, growth equities in non-cyclical industries; cyclicals later on
Once dollar strength reverses, we see deep value potential in various non-US assets and currencies, such as income-producing real estate
Our strategic asset allocation methodology points to 10-year annualized returns of 10% for Global Equities, 5.1% for Global Fixed Income and 3.4% for Cash
We continue to favor exposure to the drivers of long-term economic growth

All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events.

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