Despite widespread declines across asset classes in 2018, Citi analysts see selective opportunities across both low-risk and higher-risk assets over the coming 12-18 months. As such, Citi analysts expect an improved performance from well-diversified global portfolios in 2019.
According to Citi analysts, the periods following 20% declines in equity markets have most often been followed by strong one- and two-year returns. Negative returns in US equities after such periods have occurred only in three out of nine occasions in the past six decades, all during economic crises.
While the strength of the financial market snapback in early 2019 is unlikely to be sustained, bearish investor sentiment and positioning suggest greater room for positive surprises in the coming year than at this time last year.
The still-modest scope of Citi’s equity overweight reflects the view that while the economic expansion remains intact, global economic growth is unlikely to accelerate significantly, and asset prices are not deeply depressed overall. Citi analysts believe that the market correction of 2018 was not in any way indicative of a new economic recovery cycle but neither is it a pivot to the start of a bear market.
Long-term investors who maintain positions, could ultimately profit through cycles, but market timers are likely to miss the upside when it occurs. Citi analysts believe that separating fears from fact and investing over cycles in a disciplined manner is wisest and the historical data supports this view.