Investment strategy
December 30, 2022

Unforgettable

December 30, 2022
David Bailin
Chief Investment Officer and Head of Citi Global Wealth Investments
Steven Wieting
Chief Investment Strategist and Chief Economist
Malcolm Spittler
Senior US Economist
SUMMARY

Despite the unforgettable market turmoil seen in 2022, investors should not be backward looking when thinking about potential market opportunities.


  • 2022 was a year of turning points – for global markets as well as politics. In addition to a breakout of war in Europe and marked bifurcation of the world as China rises in power, financial markets experienced reversals.
  • The US Federal Reserve went from accommodative to restrictive policies as financial assets experienced a great revaluation. In our view, the Fed’s boom and bust policies will not end well. We don’t see a scenario where earnings remain steady – instead, they’re likely to decline 10% in 2023.
  • We think the Fed will need to reverse policy again in 2023 when job losses accelerate, and by mid-2024, we expect the Fed will have reversed half of its 2022 tightening steps.
  • We urge investors to look forward and be forward thinking too. Markets look ahead. We suggest considering 2009 to remind us why. Just as GDP was plunging at a -4.6% rate and unemployment grew consistently across the whole of 2009, US equities bottomed on March 9, 2009 – quite early in the year.
  • Inflation in the coming decade could average a bit higher than the decade preceding the Covid shock. However, we believe many investors will be surprised when it recedes sharply in 2024. As a result, bond market performance in 2023 and 2024 should improve. Attractive yields now may also benefit from bond appreciation in the future.
  • Historically, equity markets associated with recessions typically bottom halfway through the downturn. For example, in 2009, the bottom occurred 80% of the way through a full contraction.
  • Unfortunately, 2023 will not begin with smooth sailing. Investors should not expect that markets will bottom in a period of growth or optimism, but rather in the heart of contraction. But the New Year will also likely mark a transition for the world economy as it enters a growth period in 2024 and beyond.
OUTLOOK

Wealth outlook 2023

Markets in 2023 will lead the economic recovery we foresee for 2024. Therefore, we expect that 2023 may ultimately provide a series of meaningful opportunities for investors who are guided by relevant market precedents. Read our roadmap to recovery: Portfolios to anticipate opportunities. 

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