Wells Fargo Investment Institute (WFII) recently released its 2023 Midyear Outlook: Navigating End-of-Cycle Turbulence, advising investors to “remain defensive in portfolio positioning.”
Unlike some financial experts and bankers, these advisers believe the current economic slowdown is likely to evolve into a moderate recession during the second half of 2023 and into 2024, followed by a gradual, U.S.-led global recovery as 2024 progresses.
WFII suggests that investors should have opportunity to position for an eventual 2024 recovery, but they might have to do so while the economy is still within the grips of the anticipated recession.
“For now, the important objective for investors is to understand how recessions evolve and to position defensively,” a news release stated.
“Protecting capital during more challenging times is often as important, or more important, than growing capital,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “There will come a time to turn more opportunistic in positioning portfolios for a recovery; however, we need to respect the signals and understand when the risk and reward dynamic changes.”
For the remainder of 2023, WFII anticipates periods of significant volatility, especially as financial conditions tighten in the second half of the year. The report explains that one reason for this “elevated volatility” is potential inconsistencies between actual economic and policy trends compared with the market’s perceptions of those trends.
“For example,” WWII advisers say, “The Fed’s stated policy is to keep rates high while high inflation persists, but markets expect rate cuts.”