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Citi Global Wealth Investments

Outlook 2023

Roadmap to Recovery: Portfolios to Anticipate Opportunities

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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The Market Insights commentary should not be considered a recommendation or research report. Nor should it be considered a solicitation, advice or a recommendation with respect to any investment strategy, asset allocation or particular investment. The Market Insights commentary is not intended to constitute “research,” as that term is defined by applicable regulations. The views expressed herein are those of the author and do not necessarily reflect the views of Citigroup Global Markets Inc. or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

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