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Annual & Mid-year Outlook | Economy | Asset Allocation | Equities | Fixed Income

Q4 2024 | At A Glance

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To download and view our key themes and strategy for Q4 2024, please click here

Our Key Observations

  • Q4 is likely to be a quarter of heightened volatility, but the broad direction of the global economy remains positive heading in 2025.
  • The US Federal Reserve began easing in September to preserve growth.
  • While geopolitical and supply chain risks remain elevated, these risks are unlikely to change the broad direction of the global economy.
  • We expect broadening earnings growth, supporting global equities into 2025.
  • The world has entered “Phase 3” and we expect a stronger investing environment globally.

 

Our Forecasts for 2024 going into 2025:

  1. US Fed Funds Rate could reach 3.4% at the end of 2025 following the September rate cut.
  2. Volatility in 2024 has not changed market fundamentals with growth expected.
  3. Forward EPS revisions have broadened across the globe. Our S&P 500 EPS forecasts have been raised for 2024 and 2025.

S&P EPS Forecast - see pdf for full accessibility

Source: Citi Global Wealth Investments, FactSet, Bloomberg as of August 29, 2024. All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. 

 

Positioning portfolios in the fourth quarter of 2024 – Economic and Market Observations

In August, volatile markets gave us an opportunity to realign portfolios and close our underweight to mega-cap tech. While equities have quickly rallied off the lows, long duration bonds remain expensive with yields below 4%, presenting an opportunity to realign portfolios towards equities including US small-cap growth stocks and international opportunities.

In September, The Fed cut rates by 50 basis points to 4.75% in September to help the US economy continue expanding as employment falls. Citi Wealth expects the Fed Funds Rate to head to 4% by mid-2025. EM Asia has traditionally reacted positively to fed rate cuts, especially when not associated with a recession. This favors markets with strong domestic growth momentum like India and those with secular industry growth like Korea and Japan. Fed easing also aids Hong Kong as it will help unwind a historically high rate premium vs China. Fed chair Jerome Powell said that they would act – and calibrate – its actions to preserve growth. Markets are likely to respond favorably, which is likely to preserve our 2025 growth forecasts.

We expect heightened market volatility over the next few weeks as America votes for its 47th President this November. On average, the S&P 500 has historically delivered a post-election rally with positive returns in the year after elections.

  

Our Investment Themes:

1. Sticking to Equity Broadening – Normalization and Growth Ahead

Broader equity opportunities as EPS recovers. There are return opportunities globally including in EM Asia, Europe as well as LatAm. For Japan equities, the August drawdown brings Japan equities below its historical average valuation and presents investors an opportunity to add Japan equities.

2. Rate cuts on the horizon – What does this mean for Bonds?

With 50 basis points of rate cuts in September, the Fed projects to bring rates down to 3-3.5% in 2025. The US treasury curve has begun pricing in easing measures. We maintain our preference for high quality intermediate-duration in the “belly of the curve” for income, to offset volatility and as a core portfolio holding.

3. EUR as a Funding Currency

Underperforming euro area fundamentals and resurgence in political risk premia in the euro area presents an opportunity to use EUR to fund currency purchases in economies with a stronger outlook.k.

 

To get a comprehensive review on how our themes for this quarter can be implemented in your portfolio, please reach out to your Relationship Manager.

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Market Specific Disclosures

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