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Investment Strategy

Published March 25, 2024 | 10 min read time

Weekly market insights and possible impacts on investors from the Wells Fargo Investment Institute Global Investment Strategy team.

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Asset Allocation Spotlight: Risk and reward

  • The equity risk premium has trended lower. We caution investors not to neglect risks by over-allocating to equities during stock market rallies.
  • Reduced downside exposure matters in the long run. To completely recover the dollar amount lost corresponding to a given percentage loss requires a larger percentage gain. Diversification is a proven strategy to manage drawdown risks.

Equities: Fourth-quarter earnings beat expectations

  • Fourth-quarter earnings season is coming to a close and overall profits for the S&P 500 Index were better than expected, growing for the second consecutive quarter.
  • We expect earnings growth this year, but it could be modest as the consumer weakens and rates remain elevated. In this environment, we suggest focusing on quality and prefer U.S. Large Cap over U.S. Mid Cap and Small Cap Equities.

Fixed Income: Pricing in a repricing of rate cuts

  • Market repricing of Federal Reserve (Fed) interest rate cuts for 2024 has meaningfully impacted long-term fixed-income returns year-to-date.
  • We remain neutral on long-term and intermediate-term fixed income and most favorable on short-term fixed income.

Real Assets: Gold’s shining performance in 2024

  • Gold achieved an all-time high of $2,182 per troy ounce, on March 11, 2024.
  • Gold likely has more upside with the Fed expected to cut interest rates, and disinflation, not higher inflation, sets in.

Alternatives: Rising distress trends remain intact

  • Although traditional measures show that default rates have moderated, the inclusion of “distressed exchanges” highlights the expanding opportunity set for distressed credit strategies.
  • We remain favorable on distressed credit strategies as the higher-for-longer rate environment continues to erode the liquidity buffer for many over-leveraged small and mid-sized businesses.

Article written by:

Global Investment Strategist
Global Equity Strategist

Investment Strategy Analyst
Investment Strategy Analyst
Head of Real Asset Strategy

Global Alternative Investment Strategist