Major U.S. stock indexes have rallied this year but the bear market isn\u2019t over and \u201cit\u2019s too soon to price in a recovery,\u201d according to a midyear outlook report from Citi Global Wealth Investments.\u00a0\u00a0<\/p>\n
\u201cWe have had an overweight to global dividend growers,\u201d including companies with strong balance sheets and free cash flow that can withstand a recessionary environment and tightening credit conditions, said Kristen Bitterly, head of North America investments at Citi Global Wealth, in a phone interview. \u201cWe\u2019ve been going more global in nature within that positioning.\u201d<\/p>\n
\n
Citi Global Wealth is favoring defensive equities while expecting rolling recessions across U.S. sectors amid low economic growth. Its midyear report shows a forecast for 1% real growth in U.S. gross domestic product in 2023 followed by a 1.4% expansion in 2024.<\/p>\n
Bitterly is anticipating that the Federal Reserve, which has a policy meeting next week, may begin cutting its benchmark interest rate by the fourth quarter. That view is partly tied to her expectation for inflation, as measured by the consumer-price index, to fall to around 3.5% by year-end and the number of new jobs being added in the U.S. to slow to around zero, she said.\u00a0\u00a0<\/p>\n
The Fed has been trying to bring down high inflation by lifting interest rates in an effort to cool demand in the economy. Fed-funds futures point to a 70.1% chance of the central bank pausing its rate hikes at its meeting next week, and a 29.9% probability of a quarter-point hike, according to the CME FedWatch Tool, at last check.\u00a0<\/p>\n
\u201cWe do believe that we\u2019re close to peak interest rates,\u201d said Bitterly. The Fed has aggressively raised rates since March 2022, with its policy rate now in a target range of 5% to 5.25%.\u00a0<\/p>\n
\u201cIn terms of looking at your fixed-income portfolio, you want to make sure that you have diversification,\u201d she said. \u201cWe\u2019ve seen a lot of investors go into very short duration fixed income.\u201d<\/p>\n
Treasury bills, a form of short-term government debt, have been popular with investors for their yields of more than 5%, according to Bitterly. While holding T-bills has been an important part of \u201ccash management,\u201d longer duration bonds may appreciate in value as rates come down, she said.\u00a0<\/p>\n
\u201cEven just extending out to five years can create some really balanced portfolios and some sustainable income,\u201d said Bitterly, pointing to opportunities in Treasurys, investment-grade bonds or municipal debt.\u00a0<\/p>\n
The yield on the five-year Treasury note
\n TMUBMUSD05Y,
\n 3.874%<\/bg-quote>
\n was trading around 3.95% on Thursday morning, according to FactSet data, at last check.\u00a0<\/p>\nSome investors may be holding a lot of cash, including cash-equivalent T-bills, in hopes that there\u2019ll be a great moment to buy in the stock market, according to Bitterly. But in a rolling-recession environment, \u201cthere may not be a situation event,\u201d she cautioned, even if some market volatility may arise.<\/p>\n
\u201cThis idea that all of a sudden you\u2019re going to pick this ideal entry point to then get back into equities in a material way, or get back into risk assets, is a really, really tricky and difficult proposition,\u201d said Bitterly.<\/p>\n
Big Tech has driven U.S. stock-market gains this year, with the S&P 500
\n SPX,
\n +0.62%<\/bg-quote>
\n up slightly more than 11% through Wednesday, according to FactSet data. Megacap companies known as Big Tech include Apple Inc.
\n AAPL,
\n +1.55%<\/bg-quote>,<\/span>
\n Microsoft Corp.
\n MSFT,
\n +0.58%<\/bg-quote>,<\/span>
\n Google parent Alphabet Inc.
\n GOOG,
\n -0.22%<\/bg-quote><\/p>\n GOOGL,
\n -0.29%<\/bg-quote>,<\/span>
\n Amazon.com Inc.
\n AMZN,
\n +2.49%<\/bg-quote>,<\/span>
\n Nvidia Corp.
\n NVDA,
\n +2.76%<\/bg-quote>,<\/span>
\n Facebook parent Meta Platforms Inc.
\n META,
\n +0.37%<\/bg-quote>
\n and Tesla Inc.
\n TSLA,
\n +4.58%<\/bg-quote>\n <\/p>\n\u201cA highly concentrated U.S. tech rally this year masks the value still present in global equities following the 2022 bear market,\u201d according to Citi Global Wealth\u2019s midyear report. \u201cEconomic and profits growth should bottom in the next few quarters, likely presenting an opportunity to diversify portfolios into non-U.S. shares, profitable small firms, and still-depressed growth stocks.\u201d<\/p>\n
With the U.S. dollar likely weakening from its surge in 2022, international equities present investment opportunities from a currency perspective as well as from a valuation standpoint, said Bitterly.\u00a0<\/p>\n
Citi Global Wealth\u2019s report also looked at \u201cunstoppable trends\u201d that are long-term forces \u201cchanging the world,\u201d including areas such as generative artificial intelligence, \u201cenergy security,\u201d reshoring amid tensions between the U.S. and China, and demand for healthcare. <\/p>\n
\u201cInvestors should not disengage from long-term growth opportunities and evolving risks because of immediate market conditions,\u201d the report says.\u00a0<\/p>\n
In AI, there are very few \u201cpure plays\u201d within publicly-traded markets, but industries such as cybersecurity may be \u201calong for the ride,\u201d said Bitterly. <\/p>\n
Meanwhile, the bear market may not be over, but \u201cI think we are close to it,\u201d she said.<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Major U.S. stock indexes have rallied this year but the bear market isn\u2019t over and \u201cit\u2019s too soon to price in a recovery,\u201d according to a midyear outlook report from Citi Global Wealth Investments.\u00a0\u00a0 \u201cWe have had an overweight to global dividend growers,\u201d including companies with strong balance sheets and free cash flow that can […]<\/p>\n","protected":false},"author":1,"featured_media":20259,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-20258","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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