Opportunities on the Horizon: Investing Through a Slowing Economy

Overview | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 24 1.4 A guide to investing through a slowing economy ALFONSO CAMACHO Global Head of Markets Distribution JEFFREY SACKS Client Portfolio Manager, Citi Investment Management The choices investorsmake over the next six to ninemonthsmay have profound implications for their portfolio returns over the years to come. While we believe staying invested is always wise, the current environment requires investors to reconsider their portfolio composition and the timing for making allocation changes. We are entering an economic slowdown or a mild recession, one that has been telegraphed. While we believe the Federal Reserve will inhibit a rapid rebound, there is a huge amount of surplus cash waiting to “buy the dip”. Investor sentiment is poor, the landscape for investing is improving. Long-term potential growth opportunities in areas such as artificial intelligence (See Generative AI: The beginning of (another) technological revolution ) and Sustainable Energy (See Unusual investment opportunities in an atypical energy cycle ) are potent and unrelated to today’s economic challenges. Investors should now reconsider their portfolio composition and the timing for making allocation changes, while invested. As the year progresses, more active asset allocation should include lengthening duration in intermediate duration corporate bonds, US municipal bonds, preferred securities, and increasing investments in both non-US debt and equities. Looking forward to the next US recovery, there is relative value in US small- and mid-cap (SMID) stocks and potential opportunities in tech outside of the leaders as growth recovers. Our Global Investment Committee has allocated to bonds to capture higher yield and to hold defensive- income oriented equities. With this Mid-Year Outlook, we are preparing for a reallocation in our portfolios. Here are some strategies for investors to consider: