Cases of the delta variant of COVID-19 are rising just after we have reached “peak growth” in the global economy. Neither of these major issues are crises, but both suggest that important shifts in portfolios are necessary as we enter a mid-cycle period of somewhat slower, but sustainable growth. Consistent with this view, Citi analysts are making a major “Quality Shift” as we move past the last 12 months that favored COVID-19 recovery and mean reversion equity trades.
How to Manage Through a Longer End to the Pandemic
By Celestee Tan
The infectious “Delta variant” is changing the dynamics of the pandemic and the contours of the global recovery. In Citi’s view, to “Reconnect the World” and achieve a full, global economic recovery, the spread of COVID-19 will have to be better controlled. This is unlikely before year end.
Citi analysts believe that most investors undervalue dividends and the role they play in determining total investor returns. 52% of the total return in the S&P 500 has been earned by receiving and reinvesting dividends, even over the tech-dominated past three decades.
There are many uncertainties regarding the durability of COVID-19 impacted real estate trends. While overweight Real Estate since June 2020, Citi analysts believe overall assets have appreciated (recovered) too much for all sectors to offer strong returns from here.
Could US Treasury Yields Ignore the Sharpest Economic Rebound in History?
By Celestee Tan
The US bond market has absorbed a mountain of bearish news with a surge in 1H economic growth, the highest core inflation rate in 30 years and the Fed preparing markets for an end to bond purchases. Year-to-date job growth has averaged 480,000. Record high unfilled job openings support further gains. Even so, 10-year US Treasury yields have been stuck just below 1.5%, lower than even the central bank’s long-term inflation target.
Amid a complex Fed message and muddled market response, investors need to see the big picture. 1) Supply shortages that have driven inflation spikes are generally not long-term growth opportunities. 2) “Slowing the pace of Fed easing” is unlikely to cause economic collapse. 3) Central banks may “stay easy” by the standard of past decades. This does not mean they will allow inflation to accelerate without bound
