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Investment Commentary

ECONOMIC AND MARKET OVERVIEW | JUNE 14, 2021

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]


GLOBAL EQUITIES | JUNE 3, 2021

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]


INVESTMENT STRATEGY | APRIL 12, 2021

Equities Spotlight: Equity Positioning for Year Two of the Bull Market

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

Historically, the strongest returns have occurred in the first year of an equity bull market. While the second year has typically produced positive, but lower gains, accompanied by higher volatility. We believe the cyclical trends that began in the first year of the 2020 bull market will continue in the second year, benefitting asset classes and sectors that are highly sensitive to the economic rebound.  [Read more]


SPECIAL REPORT | MARCH 17, 2021

The New Landscape: Investing in Post-Pandemic Markets

by Wells Fargo Investment Institute

Looking ahead to the post-pandemic world: COVID-19 has upended our daily lives, while the response to the pandemic has reshaped global markets and the economy. The pandemic accelerated certain market trends that were already underway prior to the outbreak while sparking new ones. As the economy moves forward, we anticipate a convergence of trends that we did not observe after the 2008-2009 financial crisis. This includes protracted fiscal and monetary stimulus that government leaders resisted over the past decade. In the private sector, the post-pandemic recovery resembles rebuilding from a natural disaster, with strong spending on durable goods and housing. The combination of massive liquidity and private spending on big-ticket items is prompting a rotation in equity markets, shifting away from growth and high quality, which historically have characterized late-cycle markets, to a recovery with certain typical early-cycle characteristics.   [Read more]


INSTITUTE ALERT | FEBRUARY 18, 2021

Demystifying the Link Between Stimulus and Inflation

by Gary Schlossberg | Global Strategist of Wells Fargo Investment Institute

Key takeaways: Despite concerns from Wall Street to Main Street over the potential for an excessive rise in inflation, we believe that investors are likely to see a more moderate and benign recovery of inflation in 2021 and beyond. Structural changes in the U.S. have contributed to decades-long disinflation; as inflation picks up with the economic recovery, these structural forces are slowing the turn toward higher inflation. What it may mean for investors: We see 2021 as a year of reflation, with stronger earnings growth and improving credit quality supporting our favorable view of economically sensitive stocks and higher-quality corporate bonds.  [Read more]


INVESTMENT STRATEGY | JANUARY 4, 2021

Portfolio Implementation Spotlight: Top 5 Portfolio Ideas for 2021

by Asset Allocation Strategy Team | Wells Fargo Investment Institute

Our expectation for improving economic data and bullish investor sentiment should support equities as the recovery continues into 2021. In periods of high volatility, we suggest taking action thoughtfully and not reacting emotionally to market conditions.  [Read more]


INVESTMENT STRATEGY | NOVEMBER 16, 2020

Implications of COVID-19 Vaccine on the Equity Market

by Chao Ma, PhD, CFA, FRM | Global Portfolio and Investment Strategist of Wells Fargo Investment Institute

We expect that an eventual COVID-19 vaccine could accelerate the broadening we have seen in market participation, especially in industries that have been most impacted by the pandemic, such as travel and leisure. Over the longer term, however, we expect that certain secular trends, including the virtual experience economy and supply chain reshoring, will continue to drive the stock market.   [Read more]


SPECIAL REPORT | SEPTEMBER 30, 2020

Guide to the 2020 Elections

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

We expect economic and investment implications from the elections. However, the track of the pandemic and the economic recovery from the 2020 global recession still loom as possibly the larger influences on political and private decisions alike. We see other reasons for keeping perspective amid rising campaign rhetoric. (1) Both presidential candidates are still positioned for a win. Polls and other data suggest a substantial advantage for former Vice President Biden, but President Trump could still turn the advantage to himself. (2) Congressional control is likely to go to the party that wins the White House. We think it is likely that the Senate will go the way of the presidency. If Biden holds his lead, single-party government is likely to return in 2021. (3) Unified government can coincide with a favorable investment environment. Investors may worry about one party sweeping in to control the White House and Congress, but half of the presidential elections since 1945 have delivered single-party government, including three of the past four. What’s more, unified government has historically coincided with S&P 500 Index price returns comparable with or slightly above the 1945-2019 average annual price gain. (4) Even if the elections produce single-party government, the impact of politics on markets is likely to be more complex. The deepening political polarization in the U.S., reflected in Congress, is a trend that has limited what even single-party control of government may expect to accomplish. Thus, we believe the most controversial issues are unlikely to become law.   [Read more]


INVESTMENT STRATEGY | AUGUST 17, 2020

Five “Es” Driving the Markets

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

Maintaining a diversified portfolio through the COVID-19 crisis has allowed many investors to weather the downturn and participate in the recovery with less volatility than through an all-equity portfolio. What has driven market performance year to date is likely to remain “front and center” for the remainder of this year. Below, we discuss five key financial-market drivers that begin with the letter “E”: economy, earnings, easy monetary policy, epidemics, and elections.   [Read more]


Economic and Market Overview | June 30, 2020

2020 Midyear Outlook

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

When we set our 2020 investment theme of resilience last December, we foresaw market volatility and a vulnerable, late-cycle global economy. But we did not anticipate the most serious pandemic in a century—and likely the fastest to develop in human history. In 2020, we have seen: (1) The S&P 500 Index follow a record high with its fastest-ever decline into a bear market. (2) The first-ever negative West Texas Intermediate (WTI) oil prices caused by a perfect storm of demand destruction, excess supply, and storage limitations. (3) The economy’s plunge into a deep recession, sending U.S. Treasury rates to all-time lows. (4) A record level of unemployed workers as the economy came to an almost complete stop. The economic recession that officially began in February is historic for its depth, but governments are responding proportionately, and with speed and growing global coordination. These jarring events will impact portfolios far beyond the present. The task of our Midyear Outlook report is to examine the contours of change and how we believe investors should adapt.  [Read more]


Policy, Politics & Portfolios | May 26, 2020

The Evolving Policy Dimensions of the Pandemic

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

Is COVID-19 a game changer for congressional and gubernatorial elections? In response to the COVID-19 pandemic, U.S. lawmakers passed a series of relief packages, including the CARES Act (Phase 3), worth $2.2 trillion. This was followed by a $484 billion (Phase 3.5) package to replenish the Paycheck Protection Program (PPP) for small businesses and to provide hospitals with support. Phase 4 has passed the House; it is now in the Senate. Most of the relief packages have garnered bipartisan support—and for good reason. Nearly 90% of U.S. adults said that the CARES Act was the right thing to do. It is difficult to argue that relief was unnecessary for the millions of displaced workers and shuttered businesses as the virus spread. But some now are concerned with the United States’ ability to service the debt—and that could become a platform issue.  [Read more]


Special Report | March 20, 2020

The Perils of Trying to Time Volatile Markets

by 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]


Investment Strategy | December 9, 2019

Preparing Investment Portfolios for 2020

by Chris Haverland, CFA | Global Asset Allocation Strategist of the Wells Fargo Investment Institute

Financial market performance has been strong in 2019, especially among equities. With global equities rising more than 20% year-to-date, investors may be over-exposed to stocks and should consider rebalancing portfolios back to strategic target weights. We expect heightened volatility in 2020 and suggest investors prepare for this through a long-term focused Investment Strategy, complemented by a targeted tactical approach.  [Read more]


Special Report | October 19, 2019

How Bull Markets End

by Wells Fargo Investment Institute

As of October 2019, the U.S. economic expansion is 126 months old, marking its longest expansion in U.S. recorded history since the mid-19th century. The S&P 500 Index simultaneously has sustained the longest bull market on record, gaining nearly 3.50% on a total return basis. The sheer length of these two runs has heightened investors? anxiety—surely, they presume, the good times must soon end. Although bear markets are a normal part of the market cycle, they are difficult to time. After all, an equity market decline does not necessarily predict a bear market or an economic recession. Instead, we favor planning for the next downturn, to avoid a fear-based reaction that can undermine an investor?s long-term financial goals. In this report, we begin by exploring the relationship between equity bear markets and economic recessions. We also consider how this cycle may differ from past ones and point out potential warning signs for investors to watch in the economy and in the equity markets. We conclude by highlighting the potential implications for investors, especially how to prepare for an eventual bear market or the next recession.  [Read more]


Investment Strategy | September 3, 2019

The Fed in Focus - Post Jackson Hole

by George Rusnak, CFA Co-Head of Global Fixed Income Strategy of Wells Fargo Investment Institute

As we enter September, investors are focused on the Federal Reserve’s (Fed) mid-September meeting, along with trade and other market concerns. The Fed’s Jackson Hole symposium reflected disparate views, as Chair Powell’s speech signaled an accommodative stance, while some Fed officials voiced a reluctance to make additional rate cuts. We expect the Fed to lower the fed funds rate by another 50 basis points (0.50%) by year-end. Yet, in an uncertain market landscape, volatility is likely to rise. We believe now is the time for investors to prepare portfolios for the changes ahead.  [Read more]


Institute Alert | August 19, 2019

Economic Concerns Signal a More Conservative Stance

by Wells Fargo Investment Institute - Global Investment Strategy Team

Global Equities: We are downgrading emerging market equities from favorable to neutral. For U.S. large-cap equity sectors, we are reducing our guidance on Industrials from most favorable to neutral and our Energy sector view from favorable to neutral. We are upgrading the Real Estate sector from unfavorable to neutral and moving Utilities from most unfavorable to neutral. Global Fixed Income: We are upgrading investment-grade credit and investment- grade corporate fixed income to favorable from neutral. Forecast changes » Global Equities: We are lowering our year-end target for emerging market equities. Global Fixed Income: Sharply lower rates around the world have led us to cut our 2019 year-end federal funds rate, and 10- and 30-year U.S. Treasury yield targets. Commodities: We are raising our 2019 year-end gold price target range but lowering the year-end target ranges for West Texas Intermediate (WTI) and Brent crude oil. Global Foreign Exchange: We maintain our outlook for a steady value for the U.S. dollar against major currencies into year-end 2019, but we are adjusting the euro to depreciate and the yen to appreciate by more than our current 2019 forecasts.  [Read more]


Economic and Market Overview | June 1, 2019

2019 Midyear Outlook

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

Drivers, pilots, and sailors feel keenly the risk of drifting off course, of losing their forward focus. So should investors. Our full-ear 2019 theme, the end of easy, is playing out quite clearly. We were buyers into the downtrends of late 2018 and have used strong first-half 2019 returns to take some gains and reduce positions back to our long-term strategic targets. Hence, our midyear postscript to the end of easy is eyes forward, which is to say, look past the fleeting distractions in the daily news and stick close to long-term strategic target allocations. Benjamin Graham was correct o note the important of investors being realists when outlooks turn overly optimistic or pessimistic. At midyear nether recession nor material overheating conditions loom large. Global growth remains unsynchronized as strength has come from the U.S. and emerging markets while Europe and Japan have lagged. Assets returns for the first half outpaced economic activity, delivering market performance that typically requires a year or two to accrue. Resilient labor markets alongside a turn toward patient global central bank monetary policy have calmed recession fears and should extend the life of this record-long expansion.  [Read more]


Investment Strategy | April 22, 2019

Yield Curve Inversions and Your Portfolio

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

The recent Treasury yield curve inversion fueled investor questions about the U.S. economy and their portfolios. We believe that inversion of the 1-year to 10-year Treasury yield curve are most predictive of a U.S. recession. Overreacting to an inversion by making major portfolio changes could lead to missed opportunities for potential late-cycle gains; acting too late could leave an investor overexposed to risk asses when a recession nears.  [Read more]


Special Report | March 15, 2019

Opportunity Zone Investing

by Wells Fargo Investment Institute – Global Manager Research/Global Alternative Investment Teams

The “Investing in Opportunity Act”, included in the Tax Cuts and Jobs Act passed in December 2017 (the “Act”), is a rare, bipartisan bill that introduced a powerful and innovative means by which to stimulate long-term investment in economically-challenged communities called Qualified Opportunity Zones (“QOZs”), most of which have not benefited from the economic recovery following the global financial crisis of 2007-2008. Over 8,700 QOZs, home to more than 35 million Americans, have been identified in all 50 states and five territories. The Act offers the potential to unlock over $6 trillion of unrealized capital gains sitting on American taxpayers’ balance sheets, and redirect that capital to economically elevate these mostly urban QOZ communities while also allowing investors to potentially benefit from capital gain tax incentives.  [Read more]


Asset Allocation Strategy | February 11, 2019

Why Asset Allocation Matters in Uncertain Times

by Tracie McMillion, CFA / Chao Ma, Phd, CFA, FRM / Michael Taylor, CFA / Veronica Willis, Analyst | Wells Fargo Investment Institute

The wide performance swings over the past two years demonstrate a key principle of asset allocation – that asset returns and rankings vary from year to year – but over multiple year time periods, asset class performance tends to smooth out. A diversified portfolio is designed to help reduce volatility over multiple year time periods, but it also can accomplish this goal over shorter periods of significant return fluctuations like we saw in 2017 and 2018. Holding a concentrated portfolio of riskier assets could result in greater portfolio downturns when markets correct. Holding a diversified portfolio that helps to control downside risk could be advantageous during times of market stress. Investors should follow an appropriate asset allocation strategy through short-term dislocations. A well-defined strategy can help investors avoid making emotionally-driven financial decisions. Some common behavioral biases include: chasing past winners and losers on recency bias, or trading based on recent trends.  [Read more]


Investment Strategy | November 27, 2018

Time Horizon Often Determines Risk Tolerance

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

Financial-market volatility in the fourth quarter has put investors’ risk tolerance to the test. Investors had gotten used to low volatility levels during this bull market, and hey may feel uneasy about the recent equity market swings. An investor’s risk tolerance often depends on their investment gals and time horizon. We believe that it is imporant to review your asset allocation with your financial professional on a regular basis to make sure it continues ot align with your investment goals, risk tolerance, and time horizon.  [Read more]


Institute Alert | October 4, 2018

The Trade Deal Formerly Known as NAFTA

by Wells Fargo Investment Institute

Trade negotiations between the U.S., Canada, and Mexico successfully concluded on September 30. The outcome may represent an updated trade agreement that is intended as an acknowledgement of the evolution of global trade over the past 20 years. We believe the new agreement is generally a market-positive outcome. We expect the conclusion of NAFTA negotiations to support capital spending broadly and support the U.S. auto industry more specifically. We believe that some industrial, transport, and consumer stables firms could also benefit from the new deal.  [Read more]


Special Report | August 18, 2018

Tomorrow’s Technology – Dawn of the Intelligence Revolution

by Wells Fargo Investment Institute

We believe that we are in a transition stage between the information and the intelligence revolutions. The beginning of a new revolution and the introduction of new technologies can provide tremendous growth opportunities for investors, but it can also bring great risks. In this report, we will explore the implications of the intelligence revolution for consumers and businesses. We will also outline four ways that investors can potentially benefit from these changes.  [Read more]


Economic and Market Overview | June 1, 2018

2018 Midyear Outlook

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

As we publish this report, the current economic expansion turns nine years old and is the second longest since modern records began in 1945. It seems the further the expansion and the related equity bull market run, the more pointed the question, How much longer can they go? Global economic growth remains solid, but some of the positives from the U.S. economic expansion's early years now seem irretrievably lost. During most of the economic recovery, inflation and interest rates plumbed decades-long lows while households and businesses shed debt. Today, there are new paths higher in inflation, bond yields, and debt levels. These uptrends are more typical for an aging business cycle but are still emerging slowly, as they reverse the aftereffects from the 2008 financial crisis?  [Read more]


Special Report | APRIL 18, 2018

Investing Late in a Bull Market

by Wells Fargo Investment Institute

We are in the ninth year of a U.S. economic expansion that coincides with an equity bull market (measured by the S&P 500 Index) that turned nine years old on March 9, 2018. If we avoid a bear market through August, this will become the longest U.S. bull market ever recorded. Yet, age typically has little to do with why a stock market rally ends. We believe U.S. economic data supports the case for continued economic recovery and further stock market gains. The challenge for investors is to remain alert to the risks that accompany the latter stages of a bull market – including heightened volatility – while also taking advantage of the market’s potential for still-sizable returns.  [Read more]


Special Report | FEBRUARY 18, 2018

Balancing Risk and Reward

by Wells Fargo Investment Institute

Market participants must weigh the amount of risk they are willing to take in exchange for return or income. When assets prices begin to rise ahead of fundamental valuation measures, we believe that investors should exercise greater caution. That is because history shows that overvaluation is eventually corrected. Today, we believe that most markets are fairly valued given attractive future earnings growth potential – although we expect higher volatility to persist. In the coming years, we expect that return for most asset classes will be lower than their historical average returns. We recommend maintaining a diversified portfolio with a level of expected risk that aligns with an investor’s return objectives.  [Read more]


Special Report | JANUARY 19, 2018

Key Provisions of 2017 Tax Reform

by Wells Fargo Advisors

The final provisions of the 2017 tax reform bill are finally here. The goal of this publication is to briefly highlight some of the key changes and planning issues of this complex bill that are important to individual investors and business owners. The impact on individuals will vary depending on your particular situation. Also, many aspects of this will raise more questions and will need clarification. As time passes, we expect additional guidance to develop.  [Read more]


Investment Strategy | JANUARY 2, 2018

Five Moves that Could Make a Difference in 2018

by Tracie McMillion, CFA | Head of Global Asset Allocation Strategy of Wells Fargo Investment Institute

All major asset classes gained – some significantly – during 2017. We expect markets to continue to climb in 2018, but investors should not expect a repeat of 2017. Risk management is a crucial part of reaching most investors’ goals. We believe that investors should remain well diversified to help mitigate risk, stay fully invested according to their plan, and keep focusing on longer-term goals – while capitalizing upon active management opportunities in 2018.  [Read more]


Investment Strategy | OCTOBER 23, 2017

Investing in Record-Breaking Markets

by Tracie McMillion, CFA | Head of Global Asset Allocation Strategy of Wells Fargo Investment Institute

Most fixed income and equity indices are at, or very near, record highs. International equities and real assets are trading below their all-time highs and may offer better potential return for the amount of expected volatility risk. We believe that this is a good time for investors to rebalance portfolios after the YTD rally in many equity asset classes (and in financial markets, generally).  [Read more]


Investment Strategy | AUGUST 21, 2017

A Summary of Our Recent Target Changes

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

Recent data and evolving economic trends have led us to adjust our year-end 2017 targets for inflation, dollar exchange rates, and most equity asset classes. In particular, our equity target changes incorporate the implications of weaker inflation and strong second-quarter earnings, but we reiterate our year-long guidance that equities are likely to pull back by year-end 2017. We retain our prior tactical guidance and reiterate our recent message to investors that we expect most equity indices to rebound in 2018.  [Read more]


Economic and Market Overview | May 31, 2017

2017 Midyear Outlook

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

One truism of investing is that uncertainties are always with us, but successful investing is built on the premise that uncertainty can create opportunity. That’s how we are looking at the midpoint of 2017, and why we at Wells Fargo Investment Institute are calling our 2017 Midyear Outlook report “Seize the Opportunities.” I invite you to take a look within the following pages as we encourage you, the investor, to assess where are you in your investment plan and what is important to consider for the remainder of the year. As Henry Ford observed, “Obstacles are those frightful things you see when you take your eyes off your goal,” and thus we encourage you to keep your sights set on your investment goals and not see uncertainty as a roadblock.  [Read more]


GLOBAL MACRO STRATEGY: SPECIAL REPORT | April 24, 2017

What Do the French Election Results Mean for Markets

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

2017 Marks the 60th anniversary of the European Union’s founding with the Treaty of Rome. In the nearly 30 years since the fall of the Soviet Union, Europe’s external reason for sticking together has faded, and internal divisions have (re)emerged – none greater than the gap that is widening between the top and bottom echelons of living standards in the Eurozone community. Voter dissatisfaction has given new life to long-dormant nationalist and other movements that oppose the union.  [Read more]


Global Macro Strategy Report | February 14, 2017

Timing of the New Policy Initiatives: 2017 or 2018?

by Craig P. Holke | Investment Strategy Analyst of Wells Fargo Investment Institute

As the Trump administration's new policy initiatives are refined, and Congress outlines its preferences, the question becomes whether significant policy reform will be enacted this year or in 2018. More importantly for investors, how soon might financial markets anticipate the actual policies?  [Read more]


Global Macro Strategy Report | January 4, 2017

U.S. Economy – Steady as She Goes Again in 2017

by Michael Taylor, CFA | Global Research Analyst of Wells Fargo Investment Institute

We we embark upon another New Year, the U.S. economy continues on a slow-but-steady growth trajectory-a pace that investors have become all too accustomed to after eight long years. This year, the new leadership in Washington will promote policies that aspire to jump-start economic growth including cutting taxes and reducing regulations. Yet, such significant and complex undertakings surely will not happen overnight. When the final numbers are tallied, we project that the U.S. economy grew by about two percent in real terms in 2016, and expect slightly higher growth rate for this year.  [Read more]

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