Remain defensive in portfolio positioning for now; broader
opportunities likely once markets anticipate a U.S.-led global
recovery
Wells Fargo Investment Institute (WFII) has released its “2023
Midyear Outlook: Navigating end-of-cycle turbulence.” The report
discusses WFII’s guidance to remain defensive in portfolio
positioning, as the current economic slowdown is likely to evolve
into a moderate recession during the second half of 2023 and into
2024, followed by a gradual, U.S.-led global recovery as 2024
progresses.
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Wells Fargo Investment Institute 2023
Midyear Outlook (Graphic: Wells Fargo)
WFII suggests that investors should have a chance to position
for an eventual 2024 recovery, but they might have to do so while
the economy is still within the grips of the anticipated recession.
For now, the important objective for investors is to understand how
recessions evolve and to position defensively.
“Protecting capital during more challenging times is often as
important, or more important, than growing capital,” said Darrell
Cronk, chief investment officer for Wells Fargo Wealth &
Investment Management. “There will come a time to turn more
opportunistic in positioning portfolios for a recovery; however, we
need to respect the signals and understand when the risk and reward
dynamic changes.”
For the remainder of the year, WFII anticipates periods of
elevated volatility, especially as financial conditions tighten in
the second half of the year. Drivers of this elevated volatility
include potential inconsistencies between actual economic and
policy trends versus the market’s perceptions of those trends. For
example, the Fed's stated policy is to keep rates high while high
inflation persists, but markets expect rate cuts. Further, actual
earnings have contracted for two consecutive quarters, but markets
expect earnings to grow. While the markets realign with these
trends, there is potential for these disjoins to create
financial-market volatility. WFII believes that earnings will
contract further in 2023, and that an economic recession will stall
2023 corporate revenue growth. Profits should rebound through 2024,
as the economic recovery gradually takes hold, but corporate
earnings may not recapture their 2022 peak until early 2025.
Highlights of WFII’s forecast include:
- The anticipated U.S. GDP (gross domestic product) growth target
for 2023 year-end is 1.1%, and 1.5% for 2024.
- Inflation will likely fall below 3% in 2023 and through 2024.
The target for inflation in 2023 is 2.9% and 2.8% in 2024.
- The S&P 500 Index is expected to be relatively flat into
year-end with stock prices rebounding in 2024. The target range is
4,000 – 4,200 for year-end 2023 and 4,600 – 4,800 for 2024.
- One more interest rate increase is anticipated in 2023, before
cuts start in 2024. The Federal funds rate forecast for 2023 is
5.25% – 5.50% and 3.75% – 4.00% in 2024.
The report provides guidance to investors so they can navigate
this economic cycle. Included are economic and market forecasts,
where WFII sees opportunity, and five portfolio ideas.
Investment and Insurance Products
are:
• Not Insured by the FDIC or Any
Federal Government Agency
• Not a Deposit or Other Obligation of,
or Guaranteed by, the Bank or Any Bank Affiliate
• Subject to Investment Risks,
Including Possible Loss of the Principal Amount Invested
Risk Disclosure
Forecasts and targets are based on certain assumptions and on
our current views of market and economic conditions, which are
subject to change.
All investing involves risks, including the possible loss of
principal. There can be no assurance that any investment strategy
will be successful and meet its investment objectives. Investments
fluctuate with changes in market and economic conditions and in
different environments due to numerous factors, some of which may
be unpredictable. Asset allocation and diversification do not
guarantee investment returns or eliminate risk of loss.
The information contained herein constitutes general information
and is not directed to, designed for, or individually tailored to,
any particular investor or potential investor. This report is not
intended to be a client-specific suitability analysis or
recommendation, an offer to participate in any investment, or a
recommendation to buy, hold, or sell securities. Do not use this
report as the primary basis for investment decisions. Consider all
relevant information, including your existing portfolio, investment
objectives, risk tolerance, liquidity needs, and investment time
horizon.
About Wells Fargo Investment Institute
Wells Fargo Investment Institute, Inc. is a registered
investment adviser and wholly owned subsidiary of Wells Fargo Bank,
N.A., a bank affiliate of Wells Fargo & Company.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a leading financial
services company that has approximately $1.9 trillion in assets,
proudly serves one in three U.S. households and more than 10% of
small businesses in the U.S., and is a leading middle market
banking provider in the U.S. We provide a diversified set of
banking, investment and mortgage products and services, as well as
consumer and commercial finance, through our four reportable
operating segments: Consumer Banking and Lending, Commercial
Banking, Corporate and Investment Banking, and Wealth &
Investment Management. Wells Fargo ranked No. 41 on Fortune’s 2022
rankings of America’s largest corporations. In the communities we
serve, the company focuses its social impact on building a
sustainable, inclusive future for all by supporting housing
affordability, small business growth, financial health, and a
low-carbon economy.
News, insights and perspectives from Wells Fargo are also
available at Wells Fargo Stories.
Additional information may be found at www.wellsfargo.com |
Twitter: @WellsFargo.
CAR-0623-01316
News Release Category: WF-ERS
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version on businesswire.com: https://www.businesswire.com/news/home/20230614622882/en/
Media Sarah Kerr, 917-588-5919
sarah.kerr@wellsfargo.com
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