Investment and Insurance Products are:
We anticipate more balanced growth across the U.S. economy’s sectors, and that greater balance and some acceleration should keep the U.S. on the leading edge of a modest global economic recovery.
An economic rebound, reinforced by lower short-term interest rates, should promote broader earnings growth and higher equity prices through year-end 2025.
We expect short-term U.S. Treasury yields to fall with the Federal Reserve (Fed) policy rate, but longer-term yields should rise with economic growth, tariffs, and immigration restrictions.
In our view, commodities are well-positioned to benefit from a rebound in global demand, driven by a modest international economic recovery and lower global interest rates.
Broadening opportunities
We expect abundant cash available for spending and investment as fiscal spending and monetary policy both support economic growth. Bank reserves have declined from their peak but remain plentiful, supporting credit growth in 2025. Additionally, ample cash on the sidelines and continued elevated levels of federal government spending and Fed interest-rate cuts bolster the case for a full allocation to equities, in our view.
We prefer the S&P 500 Index Energy, Communication Services, Financials, and Industrials sectors over a tactical horizon through 2025. And while these favored sectors seek to take advantage of growth opportunities, we think it is equally important to avoid areas of the market that are defensive in nature and may detract from tactical performance, like Consumer Staples and Utilities.
Cyclical recovery
Even beyond ample liquidity to support the economy and capital markets, we anticipate stronger and more sustained economic growth to take hold. To take advantage of this next chapter in the economy, we favor establishing positions in economically sensitive asset classes now. Doing so should provide investors the option to build more sizable positions as economic conditions likely improve in 2025.
We think the global economic recovery will be strongest in the U.S., because of structural advantages — such as stronger fiscal stimulus, a vibrant technology sector, and less dependence on exports — compared with emerging markets and other developed markets.
Investment income
The Fed has begun cutting interest rates, and we expect additional cuts between December 2024 and year-end 2025. These rate cuts imply that money market funds and other short-term fixed-income instruments likely will provide less benefit over inflation than in recent years. We favor extending maturities using a laddered strategy, investing first in intermediate maturities (3 – 7 years), next in longer-dated maturities, and finally shorter maturities.
Besides fixed income, investors may earn dividend income from equities. U.S. large-cap companies have accumulated over $2.4 trillion in cash on their balance sheets and could choose to initiate or increase dividend payouts.1
Artificial intelligence
While the direct investment in semiconductors and cloud services needed to build artificial intelligence (AI) capabilities has been the driving force behind much of the investor excitement over the past couple of years, high levels of upfront investment have begun to erode the extent to which these companies’ fundamental underpinnings are superior to that of the broader market in the short term. Even so, this trend likely will moderate, not end, the recent torrid pace of price gains.
We expect the AI theme to broaden, benefiting companies across many sectors and industries typically more removed from the technology-related sectors. We anticipate long-term tailwinds for energy infrastructure investing. Industrial equipment (electrical, HVAC, generators, water utility infrastructure, midstream energy, nuclear power, and construction materials) is needed to build the infrastructure of a world driven by this emerging technology.
Event risks
We remain cautious of the risks that adverse geopolitical events pose to global market conditions. Historically, markets have overcome short-lived disruptions and over time displayed remarkable resilience. In our view, the opportunity cost of allocating a portfolio solely to prepare for low-probability events is considerable.
We prefer to avoid positioning portfolios for extreme risks that tend to garner headlines. For example, the cash-heavy portfolio may help during a surprise event but could miss other return opportunities as markets recover.
We expect abundant cash available for spending and investment as fiscal spending and monetary policy both support economic growth. Bank reserves have declined from their peak but remain plentiful, supporting credit growth in 2025. Additionally, ample cash on the sidelines and continued elevated levels of federal government spending and Fed interest-rate cuts bolster the case for a full allocation to equities, in our view.
We prefer the S&P 500 Index Energy, Communication Services, Financials, and Industrials sectors over a tactical horizon through 2025. And while these favored sectors seek to take advantage of growth opportunities, we think it is equally important to avoid areas of the market that are defensive in nature and may detract from tactical performance, like Consumer Staples and Utilities.
Cyclical recovery
Even beyond ample liquidity to support the economy and capital markets, we anticipate stronger and more sustained economic growth to take hold. To take advantage of this next chapter in the economy, we favor establishing positions in economically sensitive asset classes now. Doing so should provide investors the option to build more sizable positions as economic conditions likely improve in 2025.
We think the global economic recovery will be strongest in the U.S., because of structural advantages — such as stronger fiscal stimulus, a vibrant technology sector, and less dependence on exports — compared with emerging markets and other developed markets.
Investment income
The Fed has begun cutting interest rates, and we expect additional cuts between December 2024 and year-end 2025. These rate cuts imply that money market funds and other short-term fixed-income instruments likely will provide less benefit over inflation than in recent years. We favor extending maturities using a laddered strategy, investing first in intermediate maturities (3 – 7 years), next in longer-dated maturities, and finally shorter maturities.
Besides fixed income, investors may earn dividend income from equities. U.S. large-cap companies have accumulated over $2.4 trillion in cash on their balance sheets and could choose to initiate or increase dividend payouts.1
Artificial intelligence
While the direct investment in semiconductors and cloud services needed to build artificial intelligence (AI) capabilities has been the driving force behind much of the investor excitement over the past couple of years, high levels of upfront investment have begun to erode the extent to which these companies’ fundamental underpinnings are superior to that of the broader market in the short term. Even so, this trend likely will moderate, not end, the recent torrid pace of price gains.
We expect the AI theme to broaden, benefiting companies across many sectors and industries typically more removed from the technology-related sectors. We anticipate long-term tailwinds for energy infrastructure investing. Industrial equipment (electrical, HVAC, generators, water utility infrastructure, midstream energy, nuclear power, and construction materials) is needed to build the infrastructure of a world driven by this emerging technology.
Event risks
We remain cautious of the risks that adverse geopolitical events pose to global market conditions. Historically, markets have overcome short-lived disruptions and over time displayed remarkable resilience. In our view, the opportunity cost of allocating a portfolio solely to prepare for low-probability events is considerable.
We prefer to avoid positioning portfolios for extreme risks that tend to garner headlines. For example, the cash-heavy portfolio may help during a surprise event but could miss other return opportunities as markets recover.
Economy
In our view, the U.S. economy is once again positioned as the global growth leader. Not only do we anticipate a U.S. economic acceleration in 2025, but structural advantages — such as comparatively stronger fiscal stimulus, a vibrant technology sector, and less dependence on exports — should continue to benefit the U.S.
Our expectation for U.S. economic leadership and a relatively stronger U.S. dollar underscores our preference for domestic assets.
|
2024 latest* |
2025 target |
|
|---|---|---|
|
U.S. GDP growth2 |
2.9% (Q3) |
2.5% |
|
U.S. CPI inflation3 |
2.6% (Oct.) |
3.3% (Dec.) |
|
U.S. unemployment rate4 |
4.1% (Oct.) |
4.8% (Dec) |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. GDP = gross domestic product. CPI = Consumer Price Index. Q3 = third quarter. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
|
Fixed income
We believe the Fed has flexibility to cut interest rates further, but we think policymakers will proceed cautiously based on how quickly the economy and inflation rebound.
Ultimately, we see an opportunity for fixed-income investors to remain active and implement defensive and growth-oriented strategies concurrently. We believe that maintaining overweight exposure in U.S. Intermediate Term Taxable Fixed Income will provide investors with the best relative yield while considering potential interest-rate risk.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
Federal funds rate |
4.50% – 4.75% |
4.00% – 4.25% |
|
10-year U.S. Treasury yield |
4.17% |
4.50% – 5.00% |
|
30-year U.S. Treasury yield |
4.36% |
4.75% – 5.25% |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. |
Equities
Earnings should be the primary driver of 2025 prices across equity asset classes. We expect that a broadening and acceleration of economic growth, spurred on by a Fed easing cycle, significant new deregulation, and resilient consumer, should fuel healthy top-line sales growth while the past two years’ focus on cost control should help turn revenue growth into profit growth.
Valuations also should support earnings growth. Notably, the S&P 500 Index price-to-earnings (P/E) multiple was higher 12 months after the Fed began interest-rate cuts in all but one case since 1980 (past performance is no guarantee of future results). Anticipated deregulation and tax-cut extensions should help. Possible tariffs and immigration controls are negatives, but their impacts may take most of 2025 to develop. Taking all these anticipated policies together, we assess that the net effect likely will be positive for the economy and equity markets. Collectively, we expect these factors to support our year-end 2025 S&P 500 Index midpoint of 6,600.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
S&P 500 Index |
6,032 |
6,500 – 6,700 |
|
MSCI EAFE Index |
2,316 |
2,400 – 2,600 |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. |
Real assets
Throughout history, commodity prices have moved together through long-term bull and bear cycles, known as super-cycles. We believe commodities have been in a bull super-cycle since March 2020.
What has been missing since July 2022 is global commodity demand, particularly from China, but we believe that story is about to turn more constructive for commodity prices. The modest international economic recovery we anticipate should provide some spending support for businesses and households overseas. We suspect that supply growth rates will remain under pressure as the past two years of weak pricing has done little to entice producers to produce more. It should also be noted that supply growth often requires vast amounts of time and capital to reaccelerate.
We favor holding a basket of commodities to gain exposure to the reacceleration of the commodity bull super-cycle.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
West Texas Intermediate crude ($ per barrel) |
$68 |
$85 – $95 |
|
Gold ($ per troy ounce) |
$2,643 |
$2,800 – $2,900 |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. |
Alternative investments
Our alternative investment guidance is making a multistep shift toward exposure to strategies that might benefit from our expectations for lower short-term interest rates, a rise in equity prices, and a gradual recovery in the economy. However, as we begin this transition, we maintain our favorable guidance on select counter-cyclical opportunities as well.
In Private Capital, we maintain our favorable guidance on Growth Equity and Small- and Mid-Cap Buyout strategies as deal activity continues to highlight preferences for quality growth and less debt. If economic growth accelerates in 2025, as we anticipate, we favor allocating to strategies with the flexibility to adjust to changing market conditions, such as Equity Hedge – Directional, Relative Value – Long/Short Credit, and Macro – Discretionary.
In our view, the U.S. economy is once again positioned as the global growth leader. Not only do we anticipate a U.S. economic acceleration in 2025, but structural advantages — such as comparatively stronger fiscal stimulus, a vibrant technology sector, and less dependence on exports — should continue to benefit the U.S.
Our expectation for U.S. economic leadership and a relatively stronger U.S. dollar underscores our preference for domestic assets.
|
2024 latest* |
2025 target |
|
|---|---|---|
|
U.S. GDP growth2 |
2.9% (Q3) |
2.5% |
|
U.S. CPI inflation3 |
2.6% (Oct.) |
3.3% (Dec) |
|
U.S. unemployment rate4 |
4.1% (Oct.) |
4.8% (Dec.) |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. GDP = gross domestic product. CPI = Consumer Price Index. Q3 = third quarter. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
|
Fixed income
Fixed income
We believe the Fed has flexibility to cut interest rates further, but we think policymakers will proceed cautiously based on how quickly the economy and inflation rebound.
Ultimately, we see an opportunity for fixed-income investors to remain active and implement defensive and growth-oriented strategies concurrently. We believe that maintaining overweight exposure in U.S. Intermediate Term Taxable Fixed Income will provide investors with the best relative yield while considering potential interest-rate risk.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
Federal funds rate |
4.50% – 4.75% |
4.00% – 4.25% |
|
10-year U.S. Treasury yield |
4.17% |
4.50% – 5.00% |
|
30-year U.S. Treasury yield |
4.36% |
4.75% – 5.25% |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. |
Equities
Earnings should be the primary driver of 2025 prices across equity asset classes. We expect that a broadening and acceleration of economic growth, spurred on by a Fed easing cycle, significant new deregulation, and resilient consumer, should fuel healthy top-line sales growth while the past two years’ focus on cost control should help turn revenue growth into profit growth.
Valuations also should support earnings growth. Notably, the S&P 500 Index price-to-earnings (P/E) multiple was higher 12 months after the Fed began interest-rate cuts in all but one case since 1980 (past performance is no guarantee of future results). Anticipated deregulation and tax-cut extensions should help. Possible tariffs and immigration controls are negatives, but their impacts may take most of 2025 to develop. Taking all these anticipated policies together, we assess that the net effect likely will be positive for the economy and equity markets. Collectively, we expect these factors to support our year-end 2025 S&P 500 Index midpoint of 6,600.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
S&P 500 Index |
6,032 |
6,500 – 6,700 |
|
MSCI EAFE Index |
2,316 |
2,400 – 2,600 |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. |
Real assets
Throughout history, commodity prices have moved together through long-term bull and bear cycles, known as super-cycles. We believe commodities have been in a bull super-cycle since March 2020.
What has been missing since July 2022 is global commodity demand, particularly from China, but we believe that story is about to turn more constructive for commodity prices. The modest international economic recovery we anticipate should provide some spending support for businesses and households overseas. We suspect that supply growth rates will remain under pressure as the past two years of weak pricing has done little to entice producers to produce more. It should also be noted that supply growth often requires vast amounts of time and capital to reaccelerate.
We favor holding a basket of commodities to gain exposure to the reacceleration of the commodity bull super-cycle.
|
2024 latest* |
Year-end 2025 target |
|
|---|---|---|
|
West Texas Intermediate crude ($ per barrel) |
$68 |
$85 – $95 |
|
Gold ($ per troy ounce) |
$2,643 |
$2,800 – $2,900 |
|
Sources: Wells Fargo Investment Institute and Bloomberg. *All latest numbers from Bloomberg as of November 29, 2024. Targets for 2025 are based on forecasts by Wells Fargo Investment Institute as of December 10, 2024 and provide a forecast direction over a tactical horizon through 2025. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change. |
Alternative investments
Alternative investments
Our alternative investment guidance is making a multistep shift toward exposure to strategies that might benefit from from our expectations for lower short-term interest rates, a rise in equity prices, and a gradual recovery in the economy. However, as we begin this transition, we maintain our favorable guidance on select counter-cyclical opportunities as well.
In Private Capital, we maintain our favorable guidance on Growth Equity and Small- and Mid-Cap Buyout strategies as deal activity continues to highlight preferences for quality growth and less debt. If economic growth accelerates in 2025, as we anticipate, we favor allocating to strategies with the flexibility to adjust to changing market conditions, such as Equity Hedge – Directional, Relative Value – Long/Short Credit, and Macro – Discretionary.
Transformative technologies
At the macroeconomic level, a recent McKinsey & Company study estimated that generative AI could add 0.1% to 0.6% to the global economy’s average annual productivity growth between now and 2040, depending on the speed with which the technology is absorbed and workers’ time savings are realized.5 This in turn could provide opportunities across a wide range of sectors and asset classes over time.
Material outlays on data centers, network infrastructure, the grid, and power generation are also becoming increasingly relevant potential earnings growth opportunities for a wider array of companies.
We believe the Communication Services, Industrials, and Energy equity sectors provide some of the most interesting investment opportunities related to the AI-investment theme.
5. “The economic potential of generative AI: The next productivity frontier," McKinsey & Company, June 14, 2023.
Industrial power
We see longer-term tailwinds for energy infrastructure investing as the world looks to modernize to meet the needs of tomorrow. Whether it is investment to meet the staggering growth in data consumption (not just for AI but also additional workloads in areas such as cybersecurity and crypto mining), the shift away from traditional fossil fuels, or the acceleration toward e-commerce, these and other long-term trends require a tremendous amount of investment in upgrading infrastructure.
On this theme, we would reiterate that this favors our current asset-class preferences — namely, U.S. over international, and large-cap equities within that. We see specific investment opportunities in the Energy and Industrials sectors. It also reinforces our favorable stance on Commodities more generally and our favorable view on Energy more specifically.
At the macroeconomic level, a recent McKinsey & Company study estimated that generative AI could add 0.1% to 0.6% to the global economy’s average annual productivity growth between now and 2040, depending on the speed with which the technology is absorbed and workers’ time savings are realized.5 This in turn could provide opportunities across a wide range of sectors and asset classes over time.
Material outlays on data centers, network infrastructure, the grid, and power generation are also becoming increasingly relevant potential earnings growth opportunities for a wider array of companies.
We believe the Communication Services, Industrials, and Energy equity sectors provide some of the most interesting investment opportunities related to the AI-investment theme.
5. “The economic potential of generative AI: The next productivity frontier," McKinsey & Company, June 14, 2023.
Industrial power
We see longer-term tailwinds for energy infrastructure investing as the world looks to modernize to meet the needs of tomorrow. Whether it is investment to meet the staggering growth in data consumption (not just for AI but also additional workloads in areas such as cybersecurity and crypto mining), the shift away from traditional fossil fuels, or the acceleration toward e-commerce, these and other long-term trends require a tremendous amount of investment in upgrading infrastructure.
On this theme, we would reiterate that this favors our current asset-class preferences — namely, U.S. over international, and large-cap equities within that. We see specific investment opportunities in the Energy and Industrials sectors. It also reinforces our favorable stance on Commodities more generally and our favorable view on Energy more specifically.
The 2025 Outlook from Wells Fargo Investment Institute offers more insights and guidance for investors including:
Find out more ways to work with us.
Download the full reportGet more WFII research and analysisConsumer Price Index (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. leads the global economy through 2025.
MSCI EAFE Index (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.
S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.
An index is unmanaged and not available for direct investment.
Disclosures
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. Each asset class has its own risk and return characteristics, which should be evaluated carefully before making any investment decision. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Some of the risks associated with the representative asset classes include:
Stock markets, especially foreign markets, are volatile. A stock’s value may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. International investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging and frontier markets. Investing in small- and mid-cap companies involves additional risks, such as limited liquidity and greater volatility.
Investments in fixed-income securities are subject to market, interest rate, credit, liquidity, inflation, prepayment, extension, and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in a decline in the bond’s price. High-yield fixed-income securities are considered speculative, involve greater risk of default, and tend to be more volatile than investment-grade fixed-income securities.
U.S. government securities are backed by the full faith and credit of the federal government as to payment of principal and interest if held to maturity. Although free from credit risk, they are subject to interest rate risk. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.
Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. The Energy sector may be adversely affected by changes in worldwide energy prices, exploration, production spending, government regulation, and changes in exchange rates, depletion of natural resources, and risks that arise from extreme weather conditions. There is increased risk investing in the Industrials sector. The industries within the sector can be significantly affected by general market and economic conditions, competition, technological innovation, legislation and government regulations, among other things, all of which can significantly affect a portfolio’s performance. Materials industries can be significantly affected by the volatility of commodity prices, the exchange rate between foreign currency and the dollar, export/import concerns, worldwide competition, procurement and manufacturing and cost containment issues. Real estate investments have special risks, including possible illiquidity of the underlying properties, credit risk, interest rate fluctuations, and the impact of varied economic conditions. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks smaller, less-seasoned companies, tend to be more volatile than the overall market. Utilities are sensitive to changes in interest rates, and the securities within the sector can be volatile and may underperform in a slow economy.
Alternative investments, such as hedge funds, private equity/private debt, and private real estate funds are speculative and involve a high degree of risk that is appropriate only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. They entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, and less regulation and higher fees than mutual funds. Hedge fund, private equity, private debt, and private real estate fund investing involve other material risks, including capital loss and the loss of the entire amount invested. A fund’s offering documents should be carefully reviewed prior to investing.
Hedge fund strategies, such as Event Driven, Equity Hedge, Global Macro, Relative Value, Structured Credit, and Long/Short Credit, may expose investors to the risks associated with the use of short selling, leverage, derivatives, and arbitrage methodologies. Short sales involve leverage and theoretically unlimited loss potential because the market price of securities sold short may continuously increase. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. Derivatives generally have implied leverage, which can magnify volatility and may entail other risks, such as market, interest rate, credit, counterparty, and management risks. Private capital investments are complex, speculative investment vehicles not appropriate for all investors. They are not subject to the same regulatory requirements as registered investment products and engage in leverage and other aggressive investment practices. There is often limited (or even nonexistent) liquidity and a lack of transparency regarding the underlying assets.
Real assets are subject to the risks associated with real estate, commodities, and other investments and may not be appropriate for all investors. The commodities markets, including investments in gold and other precious metals, are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value, which may result in greater share price volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies, which may expose investors to additional risks. Investment in real estate securities includes risks, such as the possible illiquidity of the underlying properties, credit risk, interest rate fluctuations, and the impact of varied economic conditions. Other risks associated with investing in listed REITs include the use of leverage, unexpected reductions in common dividends, increases in property taxes, and the impact to listed REITs from new property development.
Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
The information in this report was prepared by the Global Investment Strategy (GIS) division of WFII. Opinions represent GIS’ opinion as of the date of this report; are for general informational purposes only; and are not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
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