Opportunities on the Horizon: Investing Through a Slowing Economy

thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 27 2.1 As US dollar dominance ends, currencies may drive returns 1 Strategic Return Estimates are no guarantee of future performance. Past performance is no guarantee of future returns. Strategic Return Estimates based on indices are Citi Global Wealth Investments’ forecast of returns for specific asset classes (to which the index belongs) over a 10-year time horizon. Indexes are used to proxy for each asset class. The forecast for each specific asset class is made using a proprietary methodology that is appropriate for that asset class. Equity asset classes utilize a proprietary forecasting methodology based on the assumption that equity valuations revert to their long-term trend over time. The methodology is built around specific valuationmeasures that require several stages of calculation. Assumptions on the projected growth of earnings and dividends are additionally applied to calculate the SRE of the equity asset class. Fixed Income asset class forecasts use a proprietary forecasting methodology that is based on current yield levels. Other asset classes utilize other specific forecasting methodologies. SRE do not reflect the deduction of client fees and expenses. Past performance is not indicative of future results. Future rates of return cannot be predicted with certainty. Investments that pay higher rates of return are often subject to higher risk and greater potential loss in an extreme scenario. The actual rate of return on investments can vary widely. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index. All SRE information shown above is hypothetical not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. STEVENWIETING Chief Investment Strategist and Chief Economist A decade ago, we predicted that the US dollar would achieve far greater value and that the USwould attract more investment. That’s exactly what happened. Now, we see the USD as having peaked. This turning point creates a series of potential opportunities that are reflected in our updated Strategic Return Estimates (SRE) 1 for non-US assets. The Federal Reserve’s aggressive tightening cycle and global shocks contributed to the strength of the US dollar in 2022, which reached its second highest value in history In the coming two years, we expect the Fed to unwind half of its tightening steps while other central banks stay relatively steady US dollar appreciation supported inflows into US stocks which are now trading at a historically high valuation premium to international equities Non-US equity returns are poised to gain from currencies when they appreciate against the US dollar