Building Resilient Portfolios in a Higher-Rate Environment

NEW YORK – Today, Citi Wealth released The Short and Long: Q4 2026 Macro Investment View, its quarterly report offering data-driven insights and portfolio guidance for investors navigating an evolving macroeconomic landscape and crowded year-end risk calendar with higher inflation, higher-for-longer rates, and geopolitical events, such as elections and ongoing wars, reinforcing the need to seek resilience in portfolios.

Economic growth and strong corporate earnings, driven by fundamentals and not valuations, remained resilient in 3Q26, supported by steady consumer spending. This coincided with persistently higher inflation, with 52% of goods and services in the U.S. Personal Consumption Expenditures basket rising above 3% over the past 12 months, leading the Federal Reserve to implement a 25-basis-point rate hike in September, cementing a global higher-for-longer rate backdrop alongside policy adjustments from the ECB and Bank of Japan.

The Citi Wealth CIO continues to believe in a higher-for-longer rates environment. This has been supported by bond yields moving dramatically this year, validating the team’s underweight to duration. The Citi Wealth CIO continues to hold gold as portfolio ballast, particularly while long-term bonds offer less reliable diversification. The team also sees diversified natural resources as a source of inflation resilience and a way to participate in the physical investment required to support economic growth, infrastructure, and the AI buildout.

The report outlines five core convictions for investors in 4Q26:

• Growth remains resilient and economic expansion should continue. The Citi Wealth CIO expects continued growth, while inflation and labor-market conditions keep pressure on policymakers to tighten. Good growth does not guarantee easy markets, but it gives investors a reason to consider staying invested.
• AI is broadening, not ending. The next phase will increasingly focus on who monetizes AI and who benefits from the enormous investment required to build and deploy it. The Citi Wealth CIO will focus on companies that can convert investment into stronger businesses and higher earnings.
• Higher rates change the portfolio math. Bonds still have a role, but investors should not assume duration will automatically provide either strong returns or protection from equity volatility. The investment regime has changed, and portfolios need to reflect it.
• Diversification needs to diversify. Owning more assets is not enough. The Citi Wealth CIO seeks exposures with genuinely different economic and market sensitivities, including commodities.
• Static portfolios are increasingly inadequate. Markets, policy, correlations and potential opportunities change. Portfolios should change with them.

The Citi Wealth CIO also highlights that the AI investment cycle and trade is evolving into an AI economy. As capital expenditure faces greater scrutiny, high-conviction potential opportunities are emerging in physical AI, including industrial automation, autonomous robotics, edge sensors, industrial software, and advanced machinery. In parallel, the Citi Wealth CIO reaffirms its conviction in cybersecurity as an important defensive capability required to protect high-value enterprise data against machine-speed AI threats.

Looking ahead, the Citi Wealth CIO remains risk-on for the remainder of 2026, while acknowledging ongoing pressures from inflation, higher rates, and evolving political and fiscal policy developments. The Citi Wealth CIO believes a disciplined approach focused on true risk look-through rather than simple asset accumulation for diversification, coupled with investing in structural opportunities, remains an effective way to navigate the current market environment.