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

Selected year-end 2019 forecasts


U.S. GDP growth


U.S. inflation
Consumer Price Index


S&P 500 Index


Federal funds rate


10-year U.S. Treasury note yield


West Texas Intermediate
crude oil per barrel

Opportunities and risks in 2019

The strategists at Wells Fargo Investment Institute share what investors may see in the year ahead.

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5 strategies for investors

1. Lower allocations to the most rate-sensitive assets

Rate-sensitive asset classes and sectors such as REITs and most fixed-income securities, and higher-dividend equity sectors such as Utilities and Materials, may face headwinds from rising rates. However, as this chart shows, equities can still post strong performance late in a cycle when interest rates are rising.


Historically, U.S. equities have outperformed bonds while rates are rising

Sources: Morningstar Direct and Wells Fargo Investment Institute, November 19, 2018. For illustrative purposes only. The S&P 500 Index is a market capitalization-weighted index considered representative of the U.S. equity market. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment-grade, U.S.-dollar-denominated, fixed-rate taxable bond market. Index returns are not fund returns. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. There is no guarantee any asset class will perform in a similar manner in the future or in other rising rate environments even if it has done so historically. Both stocks and bonds involve risk, and their returns and risk levels can vary depending on prevailing market and economic conditions. Bond prices fluctuate inversely to changes in interest rates.

2. Position for growth in equity markets

We continue to prefer equities over other asset groups and anticipate broader opportunities globally and among U.S. equity sectors.

In U.S. equity markets, we rank opportunities in U.S. large- and mid-cap equities over small-cap equities.

3. Maintain positions in high-quality fixed income

Consider reducing exposure to those securities that are sensitive to rate increases, such as long-duration fixed-income securities and developed market debt. Consider reducing high-yield holdings as well.

We favor shorter-maturity positions while rates are rising.

We expect favorable income-oriented opportunities from emerging market debt and preferred securities.

4. Diversify into international assets*

We believe the dollar will stabilize and even weaken somewhat, providing a potential boost to international assets.

International markets should benefit from steady global growth in 2019.

* Diversification does not guarantee investment returns or eliminate risk of loss.

5. Deploy cash as volatility creates opportunities

Greater market volatility in 2019 signals an end to unprecedented low volatility and above-average returns across equities, fixed income, and currencies.

We favor deploying cash selectively as volatility can create new potential opportunities in commodities and some equity markets.

Economic and investment sector outlook

Can strong economic growth continue?

In the U.S.

We believe U.S. economic growth will moderate and that inflation will remain stable. In our view the likelihood of recession rises beyond 2019.

Greater swings in economic activity, coupled with related to Federal Reserve or trade policy missteps, raise the likelihood of higher financial market volatility.

Around the world

We anticipate somewhat slower growth in Europe as the U.K. prepares for Brexit and Germany’s economy enters the latter stages of its expansion.

Uncertainties surrounding tariffs are a concern for China, yet we expect supportive fiscal and monetary policy to help underpin the country’s economy.

We believe that emerging market economic growth should accelerate, and growth rates in developed economies outside the U.S. should slow toward their long-term trends.


Tight U.S. labor market shows lowest initial unemployment claims since May 1973

Tight labor-market conditions finally have ended years of wage stagnation, and employers are finding it difficult to hire qualified workers. Yet, the pace of the U.S. economy may not be so easy to maintain.

Sources: Wells Fargo Investment Institute and Bloomberg, October 31, 2018. Monthly data from January 31, 1967, to October 31, 2018.

Note: The dashed horizontal line shows the October 2018 level of 1.63 million unemployment claims.


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