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Investment Commentary
INVESTMENT STRATEGY | NOVEMBER 21, 2023
Why Own Stocks? Three Elements for Long-Term Investors to Consider When Investing in Stocks
by Alexander Sagal & Joseph Buffa| Equity Sector Analyst of Wells Fargo Investment Institute
Key takeaways: Why should someone invest in stocks? Historically, stocks have performed well when compared to other asset groups and have typically outpaced inflation. We believe stocks play an important role inside a well-diversified portfolio. Before allocating capital to this asset group, we recommend investors consider the following elements. [Read more]
INVESTMENT STRATEGY | OCTOBER 16, 2023
Fixed Income: Five Reasons to Hold Bonds – Even When Rates Are Rising
by Brian Rehling, CFA | Head of Global Fixed Income Strategy of Wells Fargo Investment Institute
The Federal Reserve is likely to keep interest rates elevated well into next year. Despite high yields, there are many benefits to owning bonds. Higher yields have led to negative market price performance for many fixed-income securities. However, the higher yields also now provide the potential for positive real returns (the return over inflation) going forward. [Read more]
SPECIAL REPORT | SEPTEMBER 8, 2023
The Ascent of Generative AI – What Investors Should Know
by Wells Fargo Investment Institute
Artificial intelligence (AI) and, more specifically, large language models like ChatGPT have garnered much discussion throughout the first half of the year. We have seen excitement building around the development of generative AI and subsequent disruptions that may impact multiple industries over the longer term given its focus on productivity, efficiency, and cost reduction. The recent emergence of generative AI capabilities has generated considerable investor enthusiasm surrounding the new disruptive technology, particularly during the first half of the year. In this report, we discuss our view on how investors should navigate the generative AI landscape with topics ranging from our macroeconomic perspective to specific investment implementation ideas. [Read more]
INVESTMENT STRATEGY | JULY 10, 2023
Global Equity Spotlight: Runaway Bull?
by Austin Pickle, CFA | Investment Strategy Analyst of Wells Fargo Investment Institute
This year’s S&P 500 Index rally has prompted some to declare that a new bull market is upon us. We are less optimistic. In the near term, we see continued range-bound trading and favor a patient and disciplined approach that emphasizes quality. [Read more]
INVESTMENT STRATEGY | JUNE 20, 2023
Asset Allocation Spotlight: Beware of Cash Concentration
by Michelle Wan, CFA | Investment Strategy Analyst of Wells Fargo Investment Institute
As investors reallocate holdings toward cash and short-term fixed income, we believe it is prudent to align portfolio allocations with the designated investment objective, as large deviations from strategic and tactical weightings could lead to lost opportunities. We continue to favor a barbell approach to fixed-income positions. We believe maintaining exposure to high-quality equities could also help investors navigate through today’s complex macroeconomic environment. [Read more]
ECONOMIC AND MARKET OVERVIEW | JUNE, 2023
2023 Midyear Outlook
by Darrell Cronk, CFA | President of Wells Fargo Investment Institute
Of the last nine Federal Reserve (Fed) tightening cycles, seven have resulted in recession. This current tightening cycle is the fastest and most aggressive since 1981 and makes it difficult to believe the U.S. economy can avoid a contraction when the dust eventually settles. The good news is that we believe there is firm evidence that the inflationary pressures of the past several years are in retreat and that the Fed’s actions have been working as intended. [Read more]
INVESTMENT STRATEGY | APRIL 24, 2023
Equities: Bear Mark Check-In
by Chris Haverland, CFA | Global Equity Strategist of Wells Fargo Investment Institute
After reaching a bear market low of 3,577 on October 12, 2022, the S&P 500 Index has experienced an impressive rally. We believe it is unlikely equity markets will continue unscathed leading up to and during a recession. Therefore, we suggest maintaining a defensive stance in portfolios and leaning toward high-quality assets over low-quality assets. [Read more]
INVESTMENT STRATEGY | MARCH 13, 2023
Fixed Income: Stubborn Inflation, Feisty Fed
by Peter Wilson | Global Fixed Income Strategist of Wells Fargo Investment Institute
The volatile start for global bonds in 2023 is explained by the turnaround in the market’s expectations for year-ahead inflation and the renewed rise in the market-implied peak federal funds rate. In this environment, the U.S. Federal Reserve (Fed) will likely not signal a pause anytime soon. Short and long-term bond yields and the U.S. dollar are supported, risk assets look vulnerable. [Read more]
INVESTMENT STRATEGY | FEBRUARY 21, 2023
Asset Allocation Spotlight: Stay Disciplined on the Path to Recovery
by Veronica Willis | Global Investment Strategist of Wells Fargo Investment Institute
Allocations that include higher weights to fixed income experienced losses similar to their declines during the 2007 – 2009 equity bear market and may potentially take longer to recover than growth-oriented allocations. We believe maintaining consistent allocation targets can help in an effort to ensure that the allocation behaves as intended through volatile markets. Income investors should be cautious before increasing equity exposure. [Read more]
INVESTMENT STRATEGY | JANUARY 17, 2023
Fixed Income: U.S. Treasury Yields Decline – Long-term Bonds Benefit
by Luis Alvarado | Investment Strategy Analyst of Wells Fargo Investment Institute
U.S. Treasury yields have been trending lower in the first two weeks of the year, influenced largely by the macroeconomic outlook, and the bias remains to the downside. Our tactical move to extend duration has been supported as yields have declined significantly since late October, allowing long-term fixed income the potential opportunity to experience a strong recovery. [Read more]
INVESTMENT INSTITUTE | DECEMBER 2022
2023 Outlook: Recession, Recovery, and Rebound
by Wells Fargo Investment Institute
As investors, we gladly close the books on 2022. Equity and bond benchmark indexes posted deeply negative returns this past year, a double dose of disappointment unmatched over the past 50 years. While not unusual for equities to routinely post difficult years, the bond market inked its second year in a row of negative returns, a feat not seen since 1958-59. Ironically, U.S. bonds have never posted three consecutive years of negative returns, setting up for what we believe will be an exciting 2023 as interest rates peak-and one we have already begun positioning for within our current guidance. [Read more]
INVESTMENT INSTITUTE | NOVEMBER 29, 2022
Paying America’s Bills
by Wells Fargo Investment Institute
At over $30 trillion, the federal debt is staggering but currently manageable. What’s troubling is the prospect for its continued growth over the long term. We believe the Treasury has done a good job of managing the debt expense, and investors have shown no reservations about buying Treasury securities. Lower rates over the past decade helped keep funding costs low, but if rates rise further and current spending trends continue, that could change. Although it’s unlikely that investors will feel the most damaging effects of America’s fiscal challenges anytime soon, Wells Fargo Investment Institute is already factoring the potential impact into our strategic models and recommending portfolio changes for investors to consider. [Read more]
INVESTMENT STRATEGY | OCTOBER 17, 2022
Equities: Inflation is Still a Market Risk
by Chao Ma, PhD, CFA, FRM | Global Portfolio and Investment Strategist of Wells Fargo Investment Institute
Hot and sticky inflation readings may mean the continuation of tightening monetary policies, potential future earnings deterioration, and bearish market trends. We prefer to hedge the negative impact from higher interest rates, economic downturns, and high inflation by focusing on domestic, high-quality, and defensive segments of the equity markets. [Read more]
INVESTMENT STRATEGY | SEPTEMBER 26, 2022
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]
INSTITUTE ALERT | AUGUST 08, 2022
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]
INSTITUTE ALERT | JUNE 13, 2022
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]
INVESTMENT STRATEGY | MAY 16, 2022
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]
INVESTMENT STRATEGY | MAY 2, 2022
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]