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Weekly Market Analysis - The Blessing of Low Global Expectations

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3 Things to Know

Citi Revises Global Growth Forecasts Upwards for 2024, 2025

In our May Quadrant, we review our upward revisions to global growth forecasts in every region (this is the second time we’ve upgraded growth forecasts in 2024). Inflation fears – and incipient trade war fears – remain. However, growth is becoming more widespread across the world.

Non-US Corporate Profits Fell in 2023

Last year, corporate profits outside the US fell 7.5%. This was slightly more than the 6.5% drop for the S&P 500 excluding the largest US tech-related stocks (the so-called “Magnificent 7”). The overall S&P 500 grew EPS just 0.6% last year as large cap tech began a sharp EPS rebound after declines in 2022 (please see our April 27th CIO Bulletin).

But 2024 Looks Different for Europe, Asia

EPS gains should broaden to more economies and industries in 2024 and beyond. With the S&P 500 returning nearly 29% over the past year and non-US shares returning 14%, we’ve slightly moderated our US equity overweight across themes and reinvested across Europe and Asia broadly. We’ve also trimmed US short-term debt slightly as we still expect a cooling US labor market to sway the Fed again.


In our Wealth Outlook 2024 released late last year, we described an unusual circumstance we expected to come: faster growth in corporate profits and slower growth in US employment. We also believed that a slowing of inflation would allow the Fed to pivot once again towards protecting the expansion.

This was rooted in the observation that in 10 of the last 11 US Federal Reserve easing cycles, US employment growth was positive as the Fed began to cut (in the six months prior to rate cuts, non-farm employment grew by 147,000 per month, not adjusted for population growth).

Six months later, we still see all of these forecast elements as consistent with our base case views. Tracking data for economic growth across most regions have been somewhat stronger than we have expected. Leading indicators from financial markets suggest this strength will be sustained into 2025.

As such, we’ve raised our global growth forecast for 2024 to a still modest 2.6% pace and 2025 to a more trend-like 2.9%. 

Portfolio considerations

With more large and faster growing companies, US equities have earned a premium valuation to the rest of the world. On a “bottom up” basis across themes and holdings, we remain 4.5% overweight US equities and 1.5% underweight non-US. However, US equities have risen to a record high 64% share of world market cap with returns outpacing profits.

The risk of a discrete trade shock – focused on China – is a complication. We can’t, however, ignore the “catch up” potential – and diversification opportunity – of shares across the world that are beginning a cyclical recovery following profit declines.

CGWI Real GDP Forecasts (%)

Source: Citi Global Wealth Investments, May 20 2024. 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. All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events. 

Citi Revises Global Growth Forecasts Upwards for 2024, 2025

The widening of the economic expansion across regions and a broadening of corporate profits across more global industries requires us to take action in portfolios. Equities outside the US have trailed behind US shares by 15 percentage points over the past 12 months. This is the most severe period of underperformance since 2012.

Our medium-risk global asset allocation model has been 5.5% overweight US equities and 3.5% underweight non-US shares. The international underweight appears too pessimistic in light of developing fundamentals. We softened this slightly by bringing US equity themes down to 4.5% overweight and funding an increase in Asia and Europe in part with short-term US fixed income.

Non-US Corporate Profits Fell in 2023 

Last year, the world suffered a manufacturing and trade contraction, not quite as severe as a “garden variety” recession, but quite similar in complexion. During this time, the ongoing recovery in US services employment masked or “hid” these economic losses.

The declines in trade and goods production were far more relevant for economies such as Germany, Japan and China than the US. With the Fed’s historically heavy focus on US employment, this meant that US interest rate pressure was sustained while cyclical industries posted profit declines. Excluding the largest 7 US tech-related firms by market cap, S&P 500 EPS fell 6.5% last year. Outside the US, EPS fell 7.5% in 2023.

But 2024 Looks Different for Europe, Asia

Europe’s moribund economy is coming to life after more than a year stalled out. While growth may have been pitiful, Europe has shown the great flexibility of the world economy to adapt to challenges. Unlike petroleum trade, pipelines of gas from Russia cannot be re-directed. Liquid natural gas (LNG) trade has ramped up to replace this need. Along with conservation, Europe’s natural gas price is now below the levels paid when Russia was the most critical supplier.

Japan is emblematic of the beneficiaries of the global trade and production cycle. It produces many of the technology goods US investors value highly. After decades in slumber, managers are rewarding shareholders with rising dividends and a focus on capital return. China has also seen economic activity track above our conservative estimates. Of greatest interest, authorities have turned to quantitative easing to expand broad credit. This aims to stabilize its property market through programs including direct purchases. China faces external risks and depressed domestic consumer psychology. Nonetheless, we can’t ignore the adjustment the Chinese property market has already suffered in assessing the outlook for its economy.


In Wealth Outlook 2024, we highlighted 10 high conviction opportunities (with a few more variations) in public and private markets. We viewed these as high conviction immediate opportunities, though they might be more narrow in scope than the broader asset classes and thematic overweights in our tactical asset allocation. As we approach mid year, we review these opportunities and highlight a few areas where we will (happily) take gains.

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