As we begin preparing for Outlook 2022, Citi analysts expect growth to endure. The most likely scenario is that global EPS growth rates could average 7%-8% over the next two years. The period of COVID-19 disruptions and stimulus could give way to a “new normal”, with global GDP gains ongoing, but decelerating. Supply shortages may diminish as consumer goods spending moderates. Citi analysts expect COVID-19 to abate as well, with new social practices, vaccines and treatments making it manageable.
Talk of Fed rate hikes is unlikely to derail the recovery, while supply chain related inflation indicators should start to abate next year. While fiscal spending globally is unlikely to match this year’s massive stimulus, Citi analysts believe a moderate amount of infrastructure and other social spending may be passed by the Biden administration, which could benefit select industries, while offsetting tax hikes should only shave 2-3 percentage points off of EPS growth next year. Taking all these factors together, Citi analysts expect a 7-8% annualized EPS growth over the next 2 years to sustain positive equity returns.
With the market largely focused on the fate of Evergrande and any associated global economic impact, the FOMC meeting on Sep 22 was a relatively low volatility event.
Roughly 18 months after the low point for global economic activity, COVID-19 is sharply weakening as a driver of economic activity. So too is the “snapback” from depressed conditions.
Evergrande is one giant roller coaster of a real estate company. But why would its potential default spark a global selloff? The answer is worrying. In Citi’s view, worrying is a form of confirmation bias, the human tendency to aggregate information or “facts” into what must certainly happen next. This article assesses the worry points impacting investor’s thinking.
