Make these 12 investments before stocks charge toward new record highs after the US avoids a recession next year, according to the investment chief at $756 billion Citi Global Wealth

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  • Expect continued economic growth as sector-level downturns fade, according to Citi Global Wealth.
  • The firm’s global head of investments made predictions for 2024, including his GDP growth estimate.
  • Here are 12 smart places that investors should consider putting their money now.

The top investment strategist at Citi Global Wealth believes the long-awaited economic slowdown is already in the rearview mirror.

“A formal recession in which the entire economy goes negative is both unlikely and unnecessary,” said David Bailin, the $756 billion firm’s investment chief and global head of investments, in a recent interview with Insider.

Investors have been bracing for a downturn since the United States’ GDP fell in consecutive quarters last year. However, a continued contraction never materialized; instead, growth reaccelerated in the second half of 2022, allowing the unemployment rate to remain near multi-decade lows.

Bailin believes that there was no general recession because a series of sector-level slowdowns took their place. According to him, the so-called “rolling recession” caused layoffs in the technology, real estate, and consumer goods industries but did not result in a broad-based increase in unemployment.

While some businesses, particularly those reliant on advertising, are not yet out of the woods, Citi’s top strategists believe the most serious threats to the economy have passed.

Better-than-feared growth will set up record highs in 2025

According to Bailin, inflation is clearly returning to more normal levels, allowing the Federal Reserve to shift its focus to supporting the labor market. The investment chief noted that job creation is beginning to slow, but lower interest rates could certainly change that.

“That sequence of events — lower inflation, softening employment, ultimately the Fed saying, ‘Wait a minute, I’ve got to turn my attention to the employment situation’ — we believe that’s the direction of flight,” Bailin said in a statement.

Citi recently raised its 2024 GDP growth forecast from 1.2% to 1.6%, according to Bailin. The firm also forecasts a 4% increase in corporate profits in 2024, following a 1.1% increase in 2023.

Lower wage growth and improved productivity from innovations such as artificial intelligence will drive higher earnings, according to Bailin. Despite the enormous hype AI has received this year, he believes the market is still underestimating its potential long-term impact.

An improving economic backdrop will push US stocks to new all-time highs next year, though Bailin does not expect the S&P 500 to break through until 2025. Nonetheless, he advises investors to prepare for a rally by keeping their cash allocation to a minimum.

“We feel there’s a high degree of certainty that markets will be at an all-time high in 2025, and stay there,” Bailin said in an interview. “That is our main point. Its path is extremely difficult to predict. When people see what earnings will be in ’24 and then begin to project out to ’25, I believe markets will make a significant upward move.”

He went on to say: “Right now, markets are fixated on geopolitics, they’re fixated on rates, and — hopefully soon — they’ll be fixated on earnings.”

12 top places to invest heading into 2024

Despite his bullish outlook for stocks and the economy, Bailin recommends that clients stick to a diversified portfolio that includes bonds and alternative assets in addition to equities.

Bailin is interested in investment-grade corporate bonds and their high-yield counterparts, particularly those with a three- to four-year duration. Bond yields have fallen from their October highs but remain the highest since mid-2009. Many analysts believe bonds will rise significantly next year as the Fed begins to ease monetary policy.

Bank preferred stocks and private credit are also options for sophisticated investors. Preferred stock pays higher dividends to shareholders at the expense of voting rights, making it similar to bonds. Goldman Sachs Asset Management’s top minds also emphasized private credit, which provides diversification as well as double-digit yields.

“That’s where you get a wonderful benefit in terms of risk reduction in addition to a good return profile,” Bailin said of the two investments.

Bailin prefers funds that track the equal-weight version of the S&P 500 as earnings rise across the board. Growth stocks have led the market this year, and despite his bullish economic forecast, the investment chief said he still prefers them to cyclicals. Nonetheless, the valuation discount offered by equal-weighted index funds is too large for him to ignore.

However, not all growth stocks are overpriced. Bailin is particularly bullish on small- and mid-cap growth stocks, which he believes are roughly 30% cheaper than their large-cap peers at an earnings multiple of 15.5x — despite having a more robust long-term growth outlook.

Given geopolitical concerns, Bailin believes cybersecurity firms are also worth investing in.

“That sector really has not been re-valued for the impact of AI,” Bailin told Reuters. “The negative impact, the fact that the world has gotten more complicated and more threatening is another factor that benefits them in addition to whatever they had going on before.”

Investors looking for opportunities in emerging markets should consider Japan, which is experiencing a market revival this year as companies prioritize shareholders again, as well as fast-growing emerging markets such as South Korea, Taiwan, and India, according to Bailin. Japan and India are also among Goldman Sachs Asset Management strategists’ top international picks.

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