Citi market outlook: Investors who focused on loss avoidance last year missed out on a significant recovery in core portfolio assets following the rare joint decline in fixed income and equities in 2022, according to Citi Wealth's 2024 outlook. With a 20 per cent total return for the MSCI World AC Index in the six months through March 2024, Citi Wealth advises investors to avoid short-term myopia and stay focused on long-term opportunities.

Investment professionals at Citi Wealth remain concentrated on underlying value opportunities, especially as markets may become increasingly focused on the unpredictable results of the US presidential and congressional elections. Although the choice of the US President will be crucial for foreign policy, it is unlikely to dictate the economy's overall direction and market opportunities.

Global Growth Surges

The global economy has surpassed expectations in the first half of 2024. Citi Wealth had a more optimistic forecast than many entering this year, particularly those predicting a recession. Now, they forecast global growth of 2.6 per cent for 2024 and 2.9 per cent in 2025.

Since 2020, the world has faced significant upheaval with dramatic swings in output and inflation. The pandemic-induced drop in output was brief, followed by prolonged excessive stimulus and rising consumer prices. The Russia-Ukraine war also severely impacted energy supply chains. Currently, greater stability is emerging with inflation decreasing. By the end of 2024, Citi Wealth forecasts US CPI inflation to fall to around 2.5 per cent.

Economic Phases and Monetary Policy

Citi Wealth sees the current period as the third phase of global economic and market expansion following the pandemic slump in 2020. Phase 1 was stimulus-driven euphoria in 2020-21, and Phase 2 was bear market caution in 2021-22. They believe Phase 3, characterised by renewed growth and normalisation, can last at least until 2025.

While there is a possibility that US demand could persistently outstrip supply, leading to tighter monetary policy, Citi Wealth's base case is that the Fed will partially unwind the rate hikes that brought the Fed funds rate to 5.5 per cent in mid-2023. They expect the European Central Bank and the Bank of England to act earlier.

Potential Challenges

Despite expectations for growth and normalisation, Citi Wealth remains cautious about potential challenges in 2024 and beyond. Persistent inflation could necessitate higher interest rates for longer, even as the labour market cools. Additionally, inflationary supply shocks could weaken profits without alleviating rate pressures. Higher US borrowing costs and a stronger dollar might negatively impact emerging economies.

Renewed difficulties in China pose a risk, particularly to Asian growth. While China appears to be recovering, the full extent of its property market slump remains unclear. Escalation in China's strategic rivalry with the US and geopolitical tensions more broadly, such as Iran-Israel hostilities or the Russia-Ukraine conflict, could also pose risks.

Equities Outlook

Following the rally from late 2022's lows, Citi Wealth recommends a more discerning approach to equities. With a positive outlook for growth into 2025 and lower rates, they expect broadening gains for corporate earnings per share (EPS). Sectors that suffered an earnings recession last year, such as healthcare, are likely to see strengthening. Rising earnings are expected to support further equity gains, with the S&P 500 Index potentially seeing a mid-single-digit percentage increase by the end of 2024. Citi Wealth has established a tactical overweight position in the S&P 500 Equal Weight Index to capture the benefits of broadening earnings.

Markets may become focused on unpredictable result of US elections: Citi

Following the rally from late 2022's lows, Citi Wealth recommends a more discerning approach to equities. With a positive outlook for growth into 2025.

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