Citigroup.com Homepage
CIO Strategy BulletinArticle21 Apr 2024

Being Ready for the Unexpected

CIO Strategy Bulletin

Economic security requires redundant energy supplies, defense deterrents, cyber-security defense and increased tech supply chain investments. These are all robust long-term growth investments in equities markets, despite their usual volatility. Global supply shocks are very rare, but they still suggest we should invest with a range of possible positive and negative economic outcomes in mind rather than build portfolios that only seek the highest absolute return, regardless of risk.

Key Takeaways

  • The clash between Israel and Iran highlights the less secure environment for global energy supplies. As we noted in last weekend’s CIO Strategy Bulletin, for most investors, reacting to such news is too late to be effective. Portfolios should be prepared for a less-than-ideal world as embodied in our Wealth Outlook 2024 theme “Economic Security.”
  • Economic Security requires redundant energy supplies, defense deterrents, cyber-security defense and tech supply chain investment. These are all potentially robust long-term growth investments in equities markets, despite their usual volatility. We also suggest a “barbell” approach balancing income with growth opportunities. Intermediate US investment grade yields approaching 6% provide the former.
  • The “Fed Question” is back. One pressing question for investors beyond unpredictable shocks is resurfacing from 2022-2023. Will the Federal Reserve be able to tame inflation without collapsing the economy? Markets now show “healthy concern.” This may actually improve future returns. Among a variety of factors, without pricing in strong easing steps by the Fed, markets are much less vulnerable to disappointment.
  • We would suggest caution in assuming markets now suddenly have the “right” forecast for US monetary policy. The Fed’s own forecast for its policy rate 12-months out has missed the mark by 94 basis points on average over the last decade. A hawkish or dovish Fed view can flip on a dime in markets.

Want more insights?

Subscribe

Sign up to receive our newsletter providing a roundup of recent content and updates on new reports.

Sign up to receive the latest news from Citi.