Scroll down to next section

Investment and Insurance Products: NOT FDIC InsuredNO Bank GuaranteeMAY Lose Value

Where We Are Now

We believe the U.S. economic expansion is at the beginning of its final third, while developed and emerging economies are not quite as far along in the business cycle.

The gold line below represents the typical business cycle; click through the chart to learn more about different parts of the cycle and where the U.S., developed, and emerging economies are now.

Early Cycle

Where emerging economies appear to be

We expect lower inflation and U.S. dollar depreciation to support spending and investment activity, most notably in Latin American economies.


  • Activity rebounds
  • Credit begins to grow
  • Profits grow rapidly
  • Interest rates fall
  • Confidence bottoms
  • Inflation is benign

Mid Cycle

Where developed economies appear to be

However, we see some moderation in growth among international economies, particularly for the eurozone and Japan.

Where the U.S. economy appears to be

We believe that investors should focus on the ongoing U.S economic expansion, which appears to have more room to run.


  • Growth peaking
  • Credit growth strong
  • Profit growth peaking
  • Interest rates steady or rising slowly
  • Confidence increasing
  • Inflation is moderate

Late Cycle


  • Growth moderating
  • Credit tightens
  • Earnings pressured
  • Interest rates rise faster
  • Confidence peaks
  • Inflation is higher



  • Falling activity
  • Credit dries up
  • Profits decline
  • Interest rates fall
  • Confidence declines
  • Inflation eases

Source: Wells Fargo Investment Institute, June 2018

Three key takeaways about the global economy

Positive growth is still expected. We expect the global economy to post widely positive growth in 2018 based on broad gains in household spending and business investment, accommodative credit conditions, and buoyant business and consumer sentiment.

A U.S. recession is unlikely. Various recession-related indicators that we track — including inflation and interest rates — do not point to a U.S. recession this year.

The dollar could weaken. Widening U.S. fiscal and trade deficits and rising hedging costs should combine to weaken the dollar further.

What investors can expect for the rest of 2018

This video shares what investors need to know about opportunities and risks in the back half of 2018.

View transcript

Where We’re Going

What does the back half of the year hold for the U.S. economy, and what does that mean for specific investment sectors? Here are our 2018 year-end forecasts.


U.S. GDP growth


U.S. inflation
Consumer Price Index


S&P 500 Index


Federal funds rate


10-year U.S. Treasury yield


West Texas Intermediate crude oil per barrel

Source: Wells Fargo Investment Institute (WFII), June 14, 2018. Subject to change.
Forecasts and targets are based on certain assumptions and our current views of market and economic conditions,
which are subject to change.

Three Strategies for Investors

We do not see the signs that typically indicate the U.S. economic expansion is nearing an end. In fact, the economy and U.S. equity markets still could register some of their best returns of this cycle. What does that suggest to investors who want to prepare their portfolios as opportunities evolve?

1. Look to stocks over bonds and
U.S. over international

History suggests that the years before a recession are often lucrative (albeit volatile) for stocks.

Sources: Morningstar Direct and Wells Fargo Investment Institute, March 31, 2018.

Monthly data from August 31, 1926, to September 30, 2007. All returns are for one-year intervals—the first, second and third year before a recession—as defined by the National Bureau of Economic Research. Performance results are for illustrative purposes only and do not represent the performance of any investment, nor should they be interpreted as a forecast or as an indication of how the asset classes may perform in any future recession period. An index is unmanaged and not available for direct investment. Past performance does not guarantee future results. Index returns represent general market results; assume the reinvestment of dividends and other distributions; and do not reflect deduction for any fees, expenses, or taxes applicable to an actual investment.

Intermediate-term government bonds are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Intermediate-Term Government Bonds TR Index. Large-cap equities are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Large Stock TR Index. Small-cap equities are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Small Stock TR Index.

Different investments offer different levels of potential return and market risk. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Small-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Government bonds are guaranteed as to payment of principal and interest if held to maturity and are subject to interest rate. Please see the end of this report for index definitions and additional asset class risk considerations.

2. Weigh risk and reward even more carefully

Some of the characteristics of a maturing cycle are already apparent.

Tighter monetary policy may lead to greater disparity in individual stock returns. At this point, active managers may more effectively exploit the maturing cycle.

Risk and reward may reverse for some asset classes late in the cycle. High-yield bonds, for example, were attractive while interest rates remained at low levels but today appear to have more downside than upside. International developed market bonds and U.S. long-term bonds look comparatively riskier than U.S. high-quality shorter-term debt as interest rates gradually rise.

3. Take advantage of volatility

2017’s exceptionally steady gains encouraged complacency that makes this year’s fluctuations more jarring. Still, there may be opportunities to benefit from volatility.

Maintain investment horizons. Later in the market cycle, volatility may result in lower prices that can improve valuations, offering attractive entry points for investors.

Stay with a disciplined and diversified investment plan. Different scenarios can imply opposite portfolio implications. A diversified portfolio does not try to predict which risks may materialize but can help mitigate a variety of risks while also participating in positive market developments. Keep in mind, diversification strategies do not guarantee investment returns or eliminate risk of loss.

Volatility offers a chance to rebalance. Investors who followed our advice last year to take profits in equity positions (or other investors who are holding cash) now may have a chance to reallocate to more attractively priced assets.

Investment Expertise and Advice to Help Clients Succeed Financially

Wells Fargo Investment Institute is home to more than 100 investment professionals focused on investment strategy, asset allocation, portfolio management, manager reviews, and alternative investments. Its mission is to deliver timely, actionable advice that can help investors achieve their financial goals.

For additional investment insights and timely market commentary, visit our website. For assistance with your investment planning or to discuss the points in this report, please talk to your investment professional.