As individual States in the US emerge from the first-order effect of lockdowns, the result has been a uniform, major jump in economic activity, but an acceleration in the spread of the virus across half the country. Citi analysts expect financial market volatility to remain high. However, improving financial conditions, supportive macroeconomic policies, improving sentiment by consumers and business suggest that the new economic recovery could endure.
Citi analysts have shifted from Neutral to Overweight Global Equities, increased Underweight in Global Fixed Income, reduced Overweight to Gold and added a new allocation to Real Estate Investment Trusts (REITs).
There are initial signs of COVID-19 recovery however the global economic recovery may be uneven across regions. In a post-pandemic asset allocation, Citi analysts reiterate their conviction in "Unstoppable trends" such as Digital disruption, Increasing human longevity and Asia but also see potential for beaten-down sectors in the near-term.
Geopolitical / political disruptions are key risks that could challenge or impede economies and markets as they recover from the health crisis. As such, Citi analysts believe portfolio diversification and asset allocation remain paramount in managing potential volatility.
Citi analysts believe the 31% rally in just almost 2 months, since the 23 March lows may limit future return opportunities for the S&P 500. Looking out into the next economic cycle, Citi analysts see potentially more attractive opportunities outside of US large caps in areas which have not participated as strongly in the rebound.
