Wells Fargo Advisors (WFC) issued its 2012 Midyear Economic and Market Outlook on Monday, highlighting four areas of investment opportunities: the U.S. economy; U.S. equities; fixed income; and international investments, commodities and currencies.
The report includes the views of analysts and strategists on Wells Fargo Advisors’ Investment Strategy Committee. Its main conclusion is that, while there are positive forces supporting the U.S. economy and domestic stock markets, there are also plenty of downside risks as well.
Read on for details on the forecasts and specific portfolio opportunities in each of the four areas analyzed by Wells Fargo experts.
Overview: Uncertainty overshadows an improving economy; the recovery remains subpar; but the economy is not headed for another recession
Forecasts (Year-end 2012): 2.5% inflation-adjusted GDP, 8% unemployment, 2.5% CPI inflation
Recommended overweight: International emerging fixed income, short-term investment grade bonds (Treasuries, agency securities, mortgage-based securities, corporate bonds and municipal bonds)
Source: Chief Macro Strategist Gary Thayer
2. U.S. Equities
Overview: Though choppy, the market has the potential to move higher; investors should focus on cyclically oriented stocks; volatility during the last portions of economic recoveries is normal.
Forecasts (Year-end 2012): 1,400-1,450 S&P 500 Index; $103 in S&P earnings
Recommended overweight: Consumer discretionary, information technology, materials and telecommunications
Source: Chief Equity Strategist Stuart Freeman, CFA
3. Fixed Income
Overview: Buyers seeking perceived safe-haven investments have driven yields on high-quality sovereign debt down to historic lows.
Forecasts (Year-end 2012): 0.00%-0.25% target federal funds rate; 2.5% 10-year Treasury yield; 3.5% 30-year Treasury yield
Recommended overweight: Corporate bonds, emerging-market debt.
Slightly overweight: Municipal bonds, preferred securities
Source: Chief Fixed Income Strategist Brian Rehling, CFA
4. International & Commodities
Overview: As Europe continues to weigh on the markets, remain cautious but expect a better second half as there are signs the global slowdown may be ending.
Forecasts (Year-end 2012): 1,500 MSCI EAFE equity index, 1,100 MSCI emerging-market equity index, $104 crude oil per barrel, $1,700 gold per troy ounce, $1.23 euro exchange rate
Recommended overweight: Equities in Japan, Indonesia, Malaysia and Mexico; sovereign debt in Canada, Australia and New Zealand; currencies in Japan and emerging Asia; and energy and gold.
Source: Chief International Strategist Paul Christopher, CFA
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