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The case of the missing black swan

David Bailin

By David Bailin

Global Head of Investments

January 8, 2019Posted InInvestments and Investment Strategy

December 2018 was an unusually bad month in the US markets, one that saw massive selling by investors fearful of an imminent recession, one not foreseen in the macroeconomic data.

There is a relevant historical precedent for recent events. In 1961, then President Kennedy meddled in the steel markets creating uncertainties that led to a precipitous drop in markets in 1962. The “unintended consequences” of presidential policies can be quite large and unsettling, stoking fears of a “black swan” event.

What is happening in markets today is not a black swan, but the series of political and economic events we are experiencing is unprecedented, unanticipated, and collectively an outlier that could foretell a black swan.

How do you invest under these circumstances?  Our new CIO Insights publication contains extensive analysis that demonstrates why market timing is virtually impossible, but also surprising data that illustrates the nature and frequency of unexpected positive returns for longer-term investors.

Maintaining a “core” portfolio through cycles is highly advantageous and moving capital from complementary “opportunistic” portfolios into distressed markets can add meaningful, incremental value for disciplined investors.

Citi Private Bank’s base case is that earnings and equity prices will move up in 2019, volatility will be high and that an economic slowdown is more likely than a significant recession at this time. Thus, we advise clients to improve portfolio quality while maintaining their equity exposures.

To read CIO Insights, please click here.