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Five portfolio ideas for the remainder of 2022
- Diversify
- Be defensive
- Add bonds prudently
- Manage cash
- Manage risk
Build portfolio resilience with diversifiers
Although many equity and fixed-income classes may underperform our long-term assumptions as rates potentially rise further and growth continues to wane, diversifiers such as commodities and alternative investments historically have served as a useful portfolio hedge against losses.
The potential diversification benefits of commodities can make them an appealing addition to a portfolio allocation. Hedge fund strategies with low or negative correlations to stocks and bonds may help bolster a portfolio’s resilience through access to strategies that do not rely solely on positive markets for gains.
Be defensive on equity exposure late in an economic cycle
Against the backdrop of a fast-moving business cycle and global central bank tightening, we favor an equity exposure with a bent toward the higher-quality segments of the asset group.
Specifically, we believe that the U.S. is better positioned to weather the global economic slowdown and rising interest rates than international or U.S. small-cap companies are. These factors likely will affect larger U.S. companies less than smaller ones, and less than European, Japanese and many emerging-market companies.
Thus, we prefer U.S. over international equities, and we prefer large-cap and mid-cap stocks over small-cap stocks. Within U.S. equity sectors, we prefer Health Care, Energy, and Information Technology for their potential to post stable, high-quality earnings.
Add to fixed-income holdings judiciously in a rising-rate (and inflationary) environment
Looking ahead, we expect high-quality bonds to provide traditional diversification attributes both for income — particularly given that yields have risen — and to help reduce downside participation during periods of heavy equity market volatility.
We believe that investors should continue to position fixed-income allocations somewhat defensively by favoring investment-grade intermediate- and short-term fixed income. Most of the increase in investment-grade fixed-income yields and the associated price declines likely occurred during the first half of 2022. As such, we suggest that investors consider incrementally adding back to U.S. Long Term Taxable Fixed Income to strategic target levels.
Match cash allocations to time horizon
The unusual market environment so far this year has led to declining values in most asset classes with very few exceptions. Depending on the investor’s risk tolerance, a modest cash allocation may be appropriate during this period of continued market volatility.
For investors with short-term cash needs and time horizons, we believe a higher cash level or short-term bond allocation is prudent to help ensure funding of those near-term goals.
For investors with a long time horizon, we prefer to invest excess cash by dollar cost averaging into the markets over the course of several months to several quarters.*
*A periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets. Since such a strategy involves continuous investment, the investor should consider his or her ability to continue purchases through periods of low price levels.
Seek to mitigate downside risk with alternative investments, including hedge funds
Given our expectations for higher market volatility due to slower growth, persistent inflation, and rising interest rates, investments that can mitigate risk and even provide upside potential under these challenging market conditions warrant consideration for an allocation in a diversified portfolio.
Hedge fund strategies, such as Global Macro and Relative Value, offer diversification benefits through lower correlations to traditional stocks and bonds. Global Macro strategies have often performed well when there is a dominant macro trend such as rising inflation and commodities prices. Relative Value strategies seek to take advantage of arbitrage opportunities that are independent of market direction.
For qualified investors with longer time horizons, Private Capital investments with longer lock-up periods may offer additional upside potential. Private Debt strategies, such as Direct Lending strategies, can help insulate portfolios against rising interest rates while offering potentially attractive income streams.
Alternative investments, such as hedge funds, are not appropriate for all investors. They 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.
As we try to make sound decisions and keep boundless anxiety at bay, it will help to keep perspective — to be neither an optimist nor a pessimist but a realist.
Darrell L. Cronk, CFA, President, Wells Fargo Investment Institute, Chief Investment Officer, Wealth and Investment Management
What do we anticipate happening in the markets for the remainder of 2022? Here’s a look at five key areas.
- Economy
- Fixed income
- Equities
- Real assets
- Alternative investments
A bumpy post-pandemic transition
- A mild recession is now our base case for the end of 2022 and into early 2023. As inflation and monetary tightening ease more perceptibly later in 2023, we expect a nascent economic recovery that markets may project into 2024.
- We expect U.S. macroeconomic and interest rate advantages to push the dollar higher against developed market currencies. Emerging market currencies may find more support but are unlikely to broadly outperform the dollar.
- A more challenging economic environment calls for a more defensive stance within and across asset classes, in our view.
Wells Fargo Investment Institute targets
Source: Wells Fargo Investment Institute, June 14, 2022. GDP = gross domestic product; CPI = Consumer Price Index. The CPI produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change.
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Fed policy dilemma supports higher yields
- We expect uncertainties and market volatility to increase in the second half of 2022 while the Federal Reserve (the Fed) struggles to tame inflation and avoid an economic recession.
- We believe that the technical imbalance between municipal supply and demand will serve as a strong backdrop for municipal performance.
- We favor playing defense in bond portfolios today. We prefer short-term and intermediate-term maturities while interest rates continue to rise modestly. We prefer not to increase allocations or extend down the credit spectrum into high-yield fixed income at this time.
Wells Fargo Investment Institute targets
| Year-end 2022 | Year-end 2023 | |
|---|---|---|
| 10-year U.S. Treasury yield | 3.00% –3.50% | 2.50% –3.00% |
| Federal funds rate | 2.50% –2.75% | 3.25% –3.50% |
Source: Wells Fargo Investment Institute, June 14, 2022. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change.
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Positioning for late-cycle dynamics
- We expect earnings growth to slow in 2022 and shrink in 2023. However, we believe valuations will rebound in 2023 to lift equity markets by year-end.
- As the cycle matures, our preferences have moved away from cyclicals. Instead, we favor higher-quality asset classes and sectors.
- We believe quality and selectivity today will at least partially offset near-term headwinds and potentially benefit from positive structural forces we expect in the coming years.
Wells Fargo Investment Institute targets
| S&P 500 Index |
|---|
4,200 – 4,400
Year-end 2022
4,500 –4,700
Year-end 2023
Source: Wells Fargo Investment Institute, June 14, 2022. S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. 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.
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2022 commodity rally likely to slow, reaccelerate in 2023
- Commodity prices are unlikely to repeat the stellar performance they’ve had since mid-2020, yet we do expect more upside through 2023 and favor holding a full allocation in a broad-based commodity position.
- Real estate investment trust (REIT) fundamentals appear solid, yet higher interest rates may weigh on relative performance; therefore, 2022 opportunities and risks appear balanced.
- Among Midstream energy companies, we prefer C-Corporations for their strong corporate governance and their ability to attract institutional fund flows.
Wells Fargo Investment Institute targets
| Year-end 2022 | Year-end 2023 | |
|---|---|---|
| WTI crude oil | $90 –$110 | $100 –$120 |
| Brent crude oil | $95 – $115 | $105 – $125 |
Source: Wells Fargo Investment Institute, June 14, 2022. WTI = West Texas Intermediate. Forecasts, targets, and estimates are based on certain assumptions and on our current views of market and economic conditions, which are subject to change.
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Meeting late-cycle needs with alternatives
- Late cycle can be an opportune time to allocate to alternative investment strategies that have low correlation to equities and fixed income.
- For the near future, we favor strategies to help enhance equity and credit market diversification, as well as inflation-adjusted yield, both of which are available through Relative Value and Global Macro hedge fund strategies.
- For investors with longer-term investment horizons, we foresee Private Equity opportunities among small- and mid-cap buyouts.
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Wondering what to look for next? Download the full report.
The full 2022 Midyear Outlook from Wells Fargo Investment Institute offers more insights and guidance for investors including:
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• Our full forecasts for year-end 2022 and 2023
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• Details on favored asset classes and sectors
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• Deeper dives into every market sector
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• More information to help guide your investment decisions
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Download the full report (PDF)
FAQs
What is the investment outlook in 2022? ›
Here's our take: The economic and market environment in 2022 will be decidedly reflationary, with higher economic growth and higher inflation, and eventually higher real interest rates—in short, a hotter and shorter business cycle.
Is Wells Fargo a good investment bank? ›Wells Fargo, according to Bloomberg, ranks ninth in terms of U.S. investment banking market share and is well behind JPMorgan Chase (JPM -1.56%), Bank of America (BAC -1.50%), and Citigroup (C -1.70%)-- three of the "big four" banks in the U.S.
Does Wells Fargo have investment management? ›Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
What is the safest investment right now? ›- Certificates of Deposit.
- Money Market Accounts.
- Treasury Bonds.
- Treasury Inflation-Protected Securities.
- Municipal Bonds.
- Corporate Bonds.
- S&P 500 Index Fund/ETF.
- Dividend Stocks.
Going into 2022, among the key market sectors to watch are oil, gold, autos, services, and housing. Other key areas of concern include tapering, interest rates, inflation, payment for order flow (PFOF), and antitrust.
What are the big 4 investment banks? ›- JPMorgan Chase.
- Goldman Sachs.
- BofA Securities.
- Morgan Stanley.
- Citigroup.
- UBS.
- Credit Suisse.
- Deutsche Bank.
...
Overall Rating.
| Overall Rating | 3.7 | 3.8 |
|---|---|---|
| Job security and advancement | 3.4 | 3.3 |
| Management | 3.3 | 3.4 |
| Culture | 3.5 | 3.6 |
WFC stock is at best fairly valued now, if not slightly overvalued. Based on the stock's last traded share price of $49.33 as of April 11, 2022, Wells Fargo is now valued by the market at 12.4 times consensus forward FY 2022 P/E as per financial data sourced from S&P Capital IQ.
Is Wells Fargo Advisors a good investment company? ›Wells Fargo Advisors is a good business for investors and those seeking financial advice. It helps that the company is an affiliate of the well-established Wells Fargo Bank — it's easier for people to trust a name they already know. Clients who already bank with Wells Fargo can save on Wells Fargo Advisors services.
Does China own Wells Fargo Bank? ›Does China own Wells Fargo Bank? No. Wells Fargo & Company is an American multinational financial services company headquartered in San Francisco, California, with central offices throughout the United States. The Chinese government does not own this US bank.
Is Wells Fargo in Russia? ›
Services around the world
Wells Fargo does not have offices outside of the U.S. that provide services to consumer or small business customers.
- High-Yield Savings Account. ...
- High-Yield Checking Account. ...
- CDs and CD Ladders. ...
- Money Market Account. ...
- Treasury Bills.
- Your Buddy's Business.
- The Speculative Get Rich Quick Scheme.
- The MLM With a Pricey Buy-In.
- Individual Stocks.
- What to Do When Tempted to Speculate.
- Saving Account.
- Liquid Funds.
- Short-Term & Ultra Short-Term Funds.
- Equity Linked Saving Schemes (ELSS)
- Fixed Maturity Plans.
- Treasury Bills.
- Gold.
High-quality bonds and fixed indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
Which sector will boom in 2022? ›The consensus seems to be that the financial sector, industrial sector, capital goods will do well in 2022. Pharmaceuticals are also looking to make a mark, and a few experts have placed their bets on real estate and automobiles while others have advised against them.
Where should I invest my money right now? ›- High-yield savings accounts. ...
- Short-term corporate bond funds. ...
- Money market accounts. ...
- Cash management accounts. ...
- Short-term U.S. government bond funds. ...
- No-penalty certificates of deposit. ...
- Treasurys. ...
- Money market mutual funds.
Best Overall: Goldman Sachs
Goldman Sachs is arguably the most prestigious investment bank. It is a public company that's more than 150 years old; it had nearly $2.5 trillion in assets under supervision at the end of 2021.
The jaw-droppingly long hours investment bankers work are legendary. A widely-reported recent survey of first year analysts at Goldman Sachs revealed that they work on average more than 95 hours per week, and sleep around 5 hours each night.
What are Tier 1 investment banks? ›The very top investment banks from this list are: Tier 1 – J.P. Morgan, Goldman Sachs, Citigroup, Bank of America, Morgan Stanley. Tier 2 – Deutsche Bank, Barclays, Credit Suisse, UBS. Tier 3 – HSBC, BNP Paribas, Société Générale.
Which bank has the best wealth management? ›
Goldman Sachs's brand is ranked #145 in the list of Global Top 1000 Brands, as rated by customers of Goldman Sachs. Their current market cap is $113.07B. Wells Fargo's brand is ranked #139 in the list of Global Top 1000 Brands, as rated by customers of Wells Fargo. Their current market cap is $156.41B.
Is JP Morgan better than Wells Fargo? ›...
Overall Rating.
| Overall Rating | 3.9 | 3.7 |
|---|---|---|
| Work/life balance | 3.7 | 3.6 |
| Compensation and benefits | 3.8 | 3.7 |
| Job security and advancement | 3.4 | 3.4 |
| Management | 3.4 | 3.3 |
Stock Price Forecast
The 23 analysts offering 12-month price forecasts for Wells Fargo & Co have a median target of 52.00, with a high estimate of 65.00 and a low estimate of 44.50. The median estimate represents a +29.16% increase from the last price of 40.26.
...
Compare WFC With Other Stocks.
| Wells Fargo Annual Long-Term Investments (Millions of US $) | |
|---|---|
| 2009 | $172,710 |
...
Wells Probability Of Bankruptcy Analysis.
| 2021 | 2022 (projected) | |
|---|---|---|
| Gross Profit | 76.05 B | 62.22 B |
Goldman Sachs' new 2022 year-end S&P 500 target is 3600, down from 4300. The new target is about 4% lower than the benchmark's Thursday close.
Are we in a recession 2022? ›According to the general definition—two consecutive quarters of negative gross domestic product (GDP)—the U.S. entered a recession in the summer of 2022. The organization that defines U.S. business cycles, the National Bureau of Economic Research (NBER), takes a different view.
What is the safest investment with highest return? ›High-quality bonds and fixed indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
Where should I invest my money right now? ›- High-yield savings accounts. ...
- Short-term corporate bond funds. ...
- Money market accounts. ...
- Cash management accounts. ...
- Short-term U.S. government bond funds. ...
- No-penalty certificates of deposit. ...
- Treasurys. ...
- Money market mutual funds.
How far down is the stock market in 2022? ›
The tech-heavy Nasdaq 100 has dropped nearly 33 percent so far in 2022, the Dow Jones Industrial Average lost more than 20 percent while the world's best-known cryptocurrency, Bitcoin, shed nearly 60 percent of its value.
What will the S&P 500 be in 2025? ›S&P 500 Forecast 2025, S&P 500 predictions 2025, as per our Analysis Index to reach the Lower range at 6075, Higher Range can get 6560 and Medium Range is at 6280.
Is the S&P 500 index fund a good investment? ›S&P 500 index funds are an excellent way to get diversified exposure to the heart of the U.S. stock market. These passively managed funds track the large-cap stocks that represent approximately 80% of the total value of the U.S. equity market.
Will a recession lower house prices? ›How home prices might change in a recession. While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
Is US recession coming? ›Inverted curves often predate recessions. Still, it can take 18 to 24 months for a downturn to arrive after the yield curve inverts. For the past several weeks, the yield on the two-year Treasury has exceeded the 10-year yield, suggesting that markets in the U. S. expect a recession soon.
Is a recession coming in 2023? ›A recession is now likely in 2023. Here's what could trigger a sharp downturn in the economy. The economy appears to be on solid footing, with strong job growth. But warnings signs are mounting.
What should a 70 year old invest in? ›What should a 70-year-old invest in? The average 70-year-old would most likely benefit from investing in Treasury securities, dividend-paying stocks, and annuities. All of these options offer relatively low risk.
Where should I invest my money at age 60? ›- 60/40 portfolio.
- Bond ladders.
- Certificates of deposit (CDs).
- Options collar.
- Low-volatility stocks.
- Series I savings bonds.
- Preferred stock.
- High-Yield Savings Account. ...
- High-Yield Checking Account. ...
- CDs and CD Ladders. ...
- Money Market Account. ...
- Treasury Bills.
- Axis Bluechip Fund (Large-Cap)
- Canara Robeco Bluechip Equity Fund (Large-Cap)
- PGIM India Mid-Cap Opportunities Fund.
- Axis Mid-Cap Fund.
- Nippon India Small-Cap Fund.
- SBI Small-Cap Fund.
- Parag Parikh Flexi-Cap Fund.
- PGIM India Flexi-Cap Fund.
What investment has the highest return? ›
The U.S. stock market has long been considered the source of the greatest returns for investors, outperforming all other types of investments including financial securities, real estate, commodities, and art collectibles over the past century.
What is the best thing to do with a lump sum of money? ›Investing a lump sum payment into some form of savings certainly makes sense, but it's probably best to keep it in an account that offers some flexibility and can be accessed without penalty if you wind up needing the funds.