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Investment Commentary


Alternatives Spotlight: Adding Alternatives to Reduce Portfolio Drag

by Justin Lenarcic | Lead Wealth Management Solutions Analyst of Wells Fargo Investment Institute

We believe alternative investments may be uniquely positioned to help portfolios regain lost returns, or altitude. We favor Global Macro and Relative Value strategies as a way to help potentially mitigate the drag of higher inflation and interest rates. As we get closer to recession, we will shift focus to certain Private Capital and Hedge Fund strategies that can potentially benefit from a recovery in the economy and asset prices.  [Read more]


What’s Next For Inflation, and Investment Implications

by Global Investment Strategy Team | Wells Fargo Investment Institute

The recent decline in commodity prices may produce a sudden drop in headline inflation in the coming months, but other components are likely to keep inflation higher for longer. The Federal Reserve (Fed) is unlikely to pivot to an accommodative policy until inflation returns to somewhere between 2% and 3%. Policy seems set to reduce economic growth until demand roughly matches supply.  [Read more]


An Elusive Inflation Peak Weighs On Equity Markets

by Paul Christopher, CFA | Head of Global Market Strategy of Wells Fargo Investment Institute

The U.S. Labor Department’s May Consumer Price Index report, released on June 10, showed that inflation remains high, and in some areas is actually continuing to accelerate. Equity and bond markets broadly sold off ahead of this week’s Federal Reserve (Fed) policy meeting. There is no recession yet in the U.S. economy, but the inflation news only reinforces our view that a mild recession is likely to occur, beginning late in 2022 and extending into 2023.  [Read more]


Fixed Income Spotlight: Quantitative Tightening and What It Means For Markets

by Peter Wilson | Global Fixed Income Strategist of Wells Fargo Investment Institute

The Federal Reserve’s plans to reduce its securities portfolio mean that its swollen balance sheet could be down to its pre-COVID-19 size in two to three years. Quantitative tightening may add to upward pressure on real yields. Along with other forms of tightening in financial conditions, this represents a further headwind for risk assets.  [Read more]


Asset Allocation Spotlight: Remaining Disciplined Amid Market Uncertainties

by Veronica Willis | Investment Strategy Analyst of Wells Fargo Investment Institute

Economic uncertainty and market volatility may have left investors unsure of how, where, and when to put cash to work in their portfolios. Completely exiting the market can have a drastically negative impact. We recommend investors stay patient, remain invested, and, if appropriate, use dips as buying opportunities to return to targeted levels.  [Read more]


What Risks Can Investors Expect in a Rising-Rate Environment?

by Wells Fargo Investment Institute

Meaningful increases in longer-term rates occurred in 2013 and late 2016, but that is a distant memory for many investors. The last short-term rate hike cycle began in late 2015 as the Fed raised rates on a slow and steady schedule. With inflation well above Fed targets there is the potential of heightened rate volatility. The purpose of this report is to help investors anticipate risks to their portfolios if interest rates (short-term or long-term) rise.  [Read more]


Equities: Anatomy of Stock Market Corrections

by Chris Haverland, CFA | Global Equity Strategist of Wells Fargo Investment Institute

Stock market pullbacks are normal occurrences with the S&P 500 Index correcting (at least a 10% decline) on average once per year since 1928. Although the lows may not be in place yet and volatility likely will remain elevated in the near term, we would advise investors to take advantage of weakness by adding to high-quality U.S. Large and Mid Cap Equities.  [Read more]


Fixed Income Spotlight: The Federal Reserve in 2022

by Luis Alvarado | Investment Strategy Analyst of Wells Fargo Investment Institute

The Federal Reserve (Fed) will continue to play a key role in the global economy as it wrangles to tighten financial conditions and sustain the U.S. recovery. Our base case, for now, is that the Fed will only increase the federal funds target rate once in 2022 and, most likely, after it has finished purchasing assets.  [Read more]


Managing Portfolios Before Inflation Peaks

by Paul Christopher, CFA | Head of Global Market Strategy of Wells Fargo Investment Institute

We believe inflation will moderate in 2022, but we expect the path to lower inflation to begin with higher inflation in the front half of the year. The stickier drivers of inflation are likely to persist, but our base case is that they will not outweigh the improvement we expect in the transitory elements. What it may mean for investors: As long as the economy remains strong, the asset classes that we expect to outperform are those factors that drive both the economy and inflation. Our guidance aligns with favoring those sectors that we expect to outperform—and to avoid those that we expect to underperform—as inflation rises.  [Read more]

INVESTMENT STRATEGY | October 11, 2021

Equities Spotlight: Review of Stock Market Corrections and Rebounds

by Doug Beath | Global Investment Strategist of Wells Fargo Investment Institute

Stock market volatility has re-emerged and we expect this trend to continue. Absent a recession or excessive valuation, history suggests that equity-market downturns rebound relatively quickly, providing investors with an opportunity to rebalance portfolios.  [Read more]


The Perils of Trying to Time Volatile Markets

by Global Asset Allocation Strategy Team | Wells Fargo Investment Institute

Missing a handful of the best days in the market over long time periods can drastically reduce the average annual return an investor could gain just by holding on to their equity investments during sell-offs. While missing the worst days can potentially offer higher returns than a “buy and hold” strategy, disentangling the best and worst days can be difficult, since they often occur in a very tight time frame—sometimes even on consecutive trading days.  [Read more]


Equities Spotlight: Inflation, Rates, and Tapering, Oh My!

by Chris Haverland, CFA | Global Equity Strategist of Wells Fargo Investment Institute

Higher inflation, rising interest rates, and a less accommodative Federal Reserve could lead to short-term market volatility, but we expect the bull market to remain intact. Given the macro and earnings backdrop, we would view any pullback as buyable. We continue to prefer equities over fixed income, U.S. equities over international equities, and cyclical sectors over defensive sectors.  [Read more]


2021 Midyear Outlook

by Darrell Cronk, CFA | President of Wells Fargo Investment Institute

One year after the global economy emerged from lockdowns, the economy is running faster than many of us have seen in our lifetimes. The U.S. and China have led the way, thanks to the various COVID-19 vaccines, whose accelerating distribution is speeding the recovery and driving faster spending. This, plus a rise in private savings, low interest rates, and the “visible hand” of multiple government support programs are providing fuel for growth that should intensify the 2021-2022 U.S. economic recovery to its fastest two-year pace since 1965-1966. For the first four months of 2021, corporate bond issuance grew faster than it did during the prior fourth months. Elsewhere, S&P 500 Index value stocks handily outperformed growth, base metals and agricultural products posted decades-high prices, and many global benchmark equity indexes set new record highs while earnings ran to catch up with valuations.   [Read more]


Potential Opportunities as Congress Weighs Infrastructure

by Wells Fargo Investment Institute

President Biden's proposed $2.65 trillion American Jobs Plan and his $1.8 trillion American Families Plan seem likely to pass as proposed. We expect Congress to approve the spending proposals largely as proposed. We believe that the infrastructure spending plans could lift longer-term productivity and growth, potentially benefiting the Communication Services, Industrials, Materials, and Information Technology sectors and, particularly, the Utilities sector. Moreover, beyond the potential opportunities among our current list of favored equity sectors, we anticipate the American Job Plan’s emphasis on clean energy, clean water, and improving underserved communities should continue to support environmental, social, and governance research and products and could expand the landscape of private capital investments into digital infrastructure.  [Read more]