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Midyear outlook: Slower growth but opportunities exist for investors

The Wells Fargo Investment Institute’s midyear outlook for 2019 eyes continued U.S. and global growth, at least one U.S. interest rate cut, and investment opportunities amid political and trade uncertainties.

June 19, 2019

Wells Fargo Investment Institute’s midyear checkup provides an opportunity for investors to take a breather, rebalance their portfolios, and stay focused on long-term goals.

The Institute’s just-released 2019 midyear outlook, “Eyes Forward: Opportunities and Obstacles,” makes the case that the current 10-year economic expansion is not over and that all avenues for investors to consider will require careful assessment. Investment opportunities may lie in China and other emerging markets whose growth is producing more wealth and customers for global goods. The report notes global equities largely have recovered from a near 20% decline in fourth quarter 2018, and the U.S. should avoid a recession in the coming 12 months.

“The theme we adopted at the beginning of 2019, ‘the end of easy,’ still resonates,” said Darrell Cronk, president of WFII and chief investment officer of Wealth and Investment Management at Wells Fargo.

“We see global growth continuing at a moderate pace and don’t view a U.S. recession as an immediate risk,” he said. “However, there are risks for investors to keep an eye on, such as a meaningful yield-curve inversion with higher shorter-term than long-term interest rates, which historically precede a contracting economy, continued volatility in equity markets, and heightened geopolitical tensions.”

The Institute’s midyear update largely echoes the themes of the 2019 outlook reports it and Wells Fargo Asset Management issued in December 2019 for individual and institutional investors. Those outlooks foresaw modestly slower U.S. economic growth, higher interest rates, rising debt, and further geopolitical strains in 2019.

Split screen image with photo of Darrell Cronk at left and Paul Christopher at right
Darrell Cronk and Paul Christopher of Wells Fargo Investment Institute
“We see global growth continuing at a moderate pace and don’t view a U.S. recession as an immediate risk.”

— Darrell Cronk

Among the reasons for that optimism: low interest rates, low unemployment rates, a strong labor market for jobs, and steady global monetary policy. In addition to U.S. GDP growth, the Institute’s midyear outlook also forecasts global GDP growth of 3.3%, U.S. consumer price index inflation of 1.7%, a S&P 500 Index range of 2,800–2,900, and a federal funds rate range of 2.00–2.25% for 2019.

“Resilient labor markets and patient global central monetary policy have calmed recession fears and should extend the life of this record-long expansion,” said Cronk.

While earnings in the S&P 500 stocks grew by about 25% in 2018, Wells Fargo’s global investment strategy team believes earnings for the S&P will grow by just over 3% this year. The Institute considers emerging markets like China, where economic stimulus is spurring increased wealth and creating more consumers for the global economy, attractive for investors seeking higher potential returns.

According to the Institute, trade tensions and political uncertainty remain a drag on business confidence and spending, and a source of market volatility.

“Since early 2018,” said Paul Christopher, head of global market strategy for WFII, “investor concerns have focused mostly on political uncertainties, and we view these as the main economic risk. Whether we are looking at Brexit or drawn-out trade negotiations, these geopolitical elements can deepen pressure on business confidence here in the U.S.”


Risk considerations:

Forecasts are not guaranteed and are subject to change.

Each asset class has its own risk and return characteristics.  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.

Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers.  Investments in equity securities are generally more volatile than other types of securities.  There is no guarantee dividend-paying stocks will return more than the overall market.  Dividends are not guaranteed and are subject to change or elimination. 

Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

Definitions:

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. 

Yield curve is the difference between the yields on longer-term and shorter-term Treasuries. A yield curve inversion happens when long-term yields fall below short-term yields.

General disclosures:

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.

Opinions represent WFII’s opinion as of the date of the report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. WFII 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 opinions that are inconsistent with, and reach different conclusions from, this report.

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 sole basis for investment decisions.

WCR-0619-00183

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Contributors: Allison Chin-Leong and Kelly Reilly
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