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Investment strategy
May 1, 2022
2 mins

Certain tech equity performance reflects current state of the US economy

May 1, 2022
2 mins
David Bailin
Chief Investment Officer and Head of Citi Global Wealth Investments
Steven Wieting
Chief Investment Strategist and Chief Economist
SUMMARY

Amazon’s1 recent results seemingly offer a confirmation of the current state of the US economy. But significant selloffs among industry leaders provide rare opportunities to add exposures at more reasonable valuations.


  • Amazon reported a 3% year-over-year drop in its online stores segment, including products and digital media. Flat sales, product inflation, a national labor shortage, higher wages and supply-chain disruptions dented the company’s earnings and its second quarter outlook. This week, the US reported a 1.4% annualized contraction in real GDP for the first quarter of 2022, its first decline since 2Q 2020. Many are dismissing this 2022 surprise decline in GDP as an aberration. We are not. It is consistent with Amazon’s results.
  • In our RESILIENT scenario, the current employment and income recovery can outlast macro policy tightening in the US and other economies. A reduction of inflation over the next 18 months without a recession would require a major shift at the Fed so that its tightening is neither rapid nor extreme. Central banks should understand that war-driven shortages don’t signal lasting, excess demand for final goods and services.
  • As markets see the Fed tightening into an economic slowdown, they are rationally pricing a greater risk of recession. There is still time for the Fed to recognize the economy’s slowing momentum.
  • With today’s lower valuations and this eventual recognition, we would expect both the equity and bond market to find more stability as 2022 progresses.
  • We also believe that when investors see that we have peak interest rates, a recovery in growth stocks may occur. While volatility in some of our Unstoppable Trends is higher than the broader market, we have identified areas like fintech, clean energy, electric vehicles, and biotech that deserve high valuations due to their growth and long-term value creation. But we do not expect them to outperform quarter to quarter.
  • In our view, significant selloffs among industry leaders in these thematic areas provide rare opportunities to add exposures at more reasonable valuations. Additionally, these firms tend to benefit from low rates.
  • While peak rates may not coincide with a bottom in the shares of innovative leaders, we can foresee an opportune time to begin accumulating positions in secular growth leaders in the not-too-distant future.

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1For illustrative purposes only. This should not be construed as an offer or recommendation of the company discussed.