Investment Strategy

The case for copper and Industrial Metals

Industrial Metals is emerging as one of the best-performing commodity sectors year-to-date, as our benchmark — the Bloomberg Industrial Metals Subindex Total Return — has posted a 10.8% return (through November 21), led by a 25% rise in copper prices. However, as Chart 1 shows, it has not been a straight shot higher; prices have been roiled by concerns of near-term economic weakness and shifting U.S. trade policies.

In late July, proposed tariffs on copper proved to be less severe than initially expected, prompting a broad selloff as the rush to import metals ahead of tariff deadlines slowed. Nevertheless, copper and other industrial metals, such as aluminum and nickel, remain critical components for a wide range of use cases from construction and manufacturing to the buildout of emerging technologies.

Chart 1. Industrial Metals and copper prices roiled by shifting tariff policySources: Bloomberg and Wells Fargo Investment Institute. Daily data is from December 31, 2024, through November 21, 2025. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

We viewed the selloff as an attractive opportunity and upgraded the Industrial Metals sector from neutral to favorable on August 5, 2025. Looking ahead, we still see room for investors to benefit from exposure to Industrial Metals, as we expect demand growth to outstrip lagging supply and drive further price appreciation.

Copper’s ties to key segments of the U.S. economy make it sensitive to changes in macro conditions and is an important piece to our favorable outlook on Industrial Metals. The bulk of U.S. copper demand (42%) is tied to construction activity, which can be sensitive to changing interest rates and macro conditions.¹ In 2026, we expect lower interest rates to contribute to a modest reacceleration of economic growth. Notably, as Chart 2 shows, rising copper prices historically have tended to coincide with improving macro conditions.

Chart 2. Copper prices compared to Leading Economic IndicatorsSources: Bloomberg and Wells Fargo Investment Institute. Daily data is from January 1, 2003, through November 21, 2025. Leading Economic Indicator Index data as of September 2025. YoY = year-over-year changes. SMA = Simple moving average. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

In addition to an improving macro outlook, we expect thematic trends such as electrification, green energy, and the buildout of AI infrastructure to act as longer-term demand drivers for copper and other industrial metals. Currently, in the U.S., electrical components account for roughly 23% of copper demand, up from 18% a decade ago,² but we suspect its share of demand will continue to grow as these trends become more prevalent.

The growing demand from these technologies is also raising concerns of supply shortages. Near-term outages across key mines have contributed to the recent rise in prices; however, there is also a structural need for more copper globally. The International Energy Agency expects copper demand to strip the supply of current and announced mining projects to the tune of nearly 30% by 2035.³ Considering the average copper mine takes roughly 17 years for completion,⁴ we believe it is likely that constrained supply growth will continue to be a strong tailwind for higher prices.

Therefore, we remain favorable on the Industrial Metals sector and believe investors can benefit over the tactical (6- to 18-month) horizon from the demand growth we expect amid an improving macro environment and lower interest rates. Additionally, we view Industrial Metals as an ancillary to the AI theme and believe that demand growth from these emerging technologies will continue to strain existing supply and drive higher prices.

¹ “Copper Development Association’s Annual Data 2025,” Copper Development Association. November 4, 2025.

² “Copper Development Association’s Annual Data 2025,” Copper Development Association. November 4, 2025.

³ “Critical Minerals Outlook 2025,” International Energy Agency. May 21, 2025.

⁴ “Average lead time almost 18 years for mines started in 2020 – 2023,” S&P Global. April 9, 2024.

AI fears, Fed uncertainty revive market volatility

The month of November offered favorable resolutions to three major issues that have been causing investor angst for some time:

1. Finalization of a U.S.-China trade deal following tense negotiations with on and off again tariffs initiated by both sides.
2. Reopening of the U.S. government after the longest shut down in history.
3. Confirmation that capital expenditure (capex) spending associated with the AI theme was accelerating, culminating with a blowout third-quarter earnings report from the world’s largest company and surprisingly strong guidance for the fourth quarter.

Markets, however, particularly risk assets, did not respond in kind. As shown in Table 1, the S&P 500 Index, U.S. small-cap stocks (represented by the Russell 2000 Index), and Bitcoin posted sharp declines month-to-date through November 21, as well as major international equity markets (represented by MSCI EAFE and Emerging Markets Indexes). Over the same period, technology stocks significantly underperformed the S&P 500 Index while defensive sectors such as Health Care and Consumer Staples outperformed.

Table 1. November month-to-date performance

Sources: Sources: Data is from October 31, 2025, to November 21, 2025. *Bloomberg Bitcoin Index. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

The market’s initial pullback commenced in late October and early November following third-quarter earnings reports from major S&P 500 Index technology companies (five of the Magnificent Seven)⁵, which confirmed that AI capex spending was accelerating but also highlighted investor concerns about future debt financing and elevated valuations for the sector. Another major theme related to market volatility in November centered around uncertainties regarding the future of Fed policy with interest rate futures markets’ gyrating from a 99% probability of a December 10, 2025, rate cut, to 34%, and then back up to 63%.

In our view, recent market actions reflect more market churn than broad weakness or a major rotation into defensive sectors. We see today’s headlines as transient and foresee higher equity prices through 2026, led by cyclicals due to favorable trends accelerating economic growth such as tax cuts and deregulation. Whether or not the Fed cuts rates in December, we expect rate cuts in 2026 — also potentially benefiting stocks. Finally, we are constructive on the AI theme and would suggest using market pullbacks to rebalance into ancillary technology trends with more attractive valuations: Financials, Utilities, and Industrials.

⁵ The Magnificent Seven stocks include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

Earnings are key for weak single-B rated bond issuers

As third-quarter earnings wrap up, there are mixed messages within the high-yield credit landscape. On one hand, Moody’s⁶ forecasts the 12-month default rate will fall below the long-term average over the next year in its base case scenario. On the other hand, interest coverage ratios ((EBITDA to interest expenses)⁷ are likely to remain at 10-year lows as earnings growth for high-yield issuers has been much more subdued than it has been for their investment-grade counterparts. Further, credit spreads remain below historical averages, leaving investors less room for error on both a valuation and fundamental basis. This environment is not new — the neutral rating we maintain on this asset class reflects a balance between its relative high yield and low duration, with narrow credit spreads amidst pressured fundamentals.

We believe healthy capital market access and durable earnings are key for continued strong performance amongst high-yield bonds. The divergence in default forecasts and coverage ratios lies in the fact that there are fewer companies with near-distressed credit spreads, at the moment, that will need to refinance debt in the next year. Even at low coverage ratios, single-B issuers are still largely able to finance their ongoing operations and meet upcoming obligations, if earnings do not experience a meaningful decline. Further, we believe capital market access will remain sufficient for such companies, owing to the large demand for yield and likelihood of lower interest rates. However, we believe the reduced cushion for earnings deterioration suggests credit quality should remain a top priority for high-yield investors.

Chart 3. High-yield interest coverage ratios below 10-year averagesSources: Bloomberg and Wells Fargo Investment Institute. Data as of November 25, 2025. Interest Coverage Ratio refers to Trimmed Mean. Q1 = first quarter. Q2 = second quarter. Q3 = third quarter. Q4 = fourth quarter. BB = BB-rated corporate bond. B = B-rated corporate bond.

⁶ Moody’s Economic Data, “October 2025 Default Report,” November 14, 2025.

⁷ EBITDA to interest expense ratio measures a company’s ability to cover its interest obligations from operating earnings before interest, taxes, depreciation, and amortization. A higher ratio indicates stronger interest coverage and lower default risk, while a lower ratio signals potential financial stress. EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.

Evergreen funds offer access to private markets

Morningstar has introduced new indexes tracking U.S. non-traded registered private capital funds, commonly known as evergreen or perpetual funds. These Morningstar indexes aim to provide investors with benchmarks for evaluating the performance of evergreen funds, which offer qualified investors with access to private markets.

Although the total assets under management of evergreen funds remain smaller in scale compared to traditional drawdown funds, they have grown rapidly in recent years. Since 2022, more than 250 evergreen or perpetual funds have launched, and total assets have risen from $250 billion to nearly $450 billion.⁸ As shown in Chart 4, private equity and private debt evergreen fund indexes delivered high single-digit to low-teen returns over one- and three-year periods. In contrast, private real estate posted a 1.8% loss over three years, which we believe is broadly reflecting higher interest rates and slower economic growth. For indexes with longer histories, such as private debt and private real estate, five- and ten-year returns have averaged mid- to high-single digits.

Evergreen funds operate like traditional closed-end funds in terms of governance and investment strategy. However, they do not have a fixed end date. Instead of winding down after 8-12 years, evergreen funds aim to continue indefinitely by reinvesting some or all proceeds into new deals. Evergreen funds may offer periodic subscriptions and limited redemptions, regular net asset value pricing, and simplified tax reporting, but no full redemption flexibility like public mutual funds. Additionally, most evergreen funds remain relatively new — especially in private equity — and often focus on specific strategies.

We believe evergreen funds provide additional options for qualified investors seeking private market exposure. Qualified investors should tailor their fund choice based on individual risk tolerance, liquidity needs, and long-term objectives.

Chart 4. Private capital evergreen fund index performanceSources: Morningstar and Wells Fargo Investment Institute. Data as of June 30, 2025. For the private equity index, 5-year and 10-year data is not available, given the limited history. Private equity: Morningstar US Private Equity Evergreen Fund Index; Private debt: Morningstar US Private Debt Evergreen Fund Index; Private real estate: Morningstar US Private Real Estate Evergreen Fund Index. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

Alternative investments, such as hedge funds, private equity, private debt and private real estate funds are not appropriate for all investors and are only open to “accredited” or “qualified” investors within the meaning of U.S. securities laws.

⁸ Morningstar, “Benchmarking the Evergreen Evolution,” November 5, 2025.

Cash Alternatives and Fixed Income

Equities

Real Assets

Alternative Investments**

Source: Wells Fargo Investment Institute, December 1, 2025.

*Tactical horizon is 6-18 months

**Alternative investments 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. Please see end of report for important definitions and disclosures.

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. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Investing in gold, silver or other precious metals involves special risk considerations such as severe price fluctuations and adverse economic and regulatory developments affecting the sector or industry. Real estate has special risks including the possible illiquidity of underlying properties, credit risk, interest rate fluctuations and the impact of varied economic conditions. Cash alternatives typically offer lower rates of return than longer-term equity or fixed-income securities and provide a level of liquidity and price stability generally not available to these investments. Some examples of cash alternatives include: Bank certificates of deposit; bank money market accounts; bankers’ acceptances, federal agency short-term securities, money market mutual funds, Treasury bills, ultra-short bond mutual funds or exchange-traded funds and variable rate demand notes. Each type of cash alternatives has advantages and disadvantages which should be discussed with your financial advisor before investing.

Alternative investments, such as hedge funds, private equity/private debt and private real estate funds, 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. They entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds. Hedge fund, private equity, private debt and private real estate fund investing involves other material risks including capital loss and the loss of the entire amount invested. A fund's offering documents should be carefully reviewed prior to investing.

Hedge fund strategies, such as Equity Hedge, Event Driven, Macro and Relative Value, may expose investors to the risks associated with the use of short selling, leverage, derivatives and arbitrage methodologies. Short sales involve leverage and theoretically unlimited loss potential since the market price of securities sold short may continuously increase. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. Derivatives generally have implied leverage which can magnify volatility and may entail other risks such as market, interest rate, credit, counterparty and management risks. Arbitrage strategies expose a fund to the risk that the anticipated arbitrage opportunities will not develop as anticipated, resulting in potentially reduced returns or losses to the fund.

Private capital investments are complex, speculative investment vehicles not appropriate for all investors. They are not subject to the same regulatory requirements as registered investment products and engage in leverage and other aggressive investment practices. There is often limited (or even non-existent) liquidity and a lack of transparency regarding the underlying assets.

Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Consumer Staples industries can be significantly affected by competitive pricing particularly with respect to the growth of low-cost emerging market production, government regulation, the performance of the overall economy, interest rates, and consumer confidence. The Energy sector may be adversely affected by changes in worldwide energy prices, exploration, production spending, government regulation, and changes in exchange rates, depletion of natural resources, and risks that arise from extreme weather conditions. Investing in the Financial services companies will subject an investment to adverse economic or regulatory occurrences affecting the sector. Some of the risks associated with investment in the Health Care sector include competition on branded products, sales erosion due to cheaper alternatives, research and development risk, government regulations and government approval of products anticipated to enter the market. There is increased risk investing in the Industrials sector. The industries within the sector can be significantly affected by general market and economic conditions, competition, technological innovation, legislation and government regulations, among other things, all of which can significantly affect a portfolio’s performance. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market. Utilities are sensitive to changes in interest rates, and the securities within the sector can be volatile and may underperform in a slow economy.

An index is unmanaged and not available for direct investment.

Bloomberg Industrial Metals Index is composed of futures contracts on aluminum, copper, nickel and zinc. It reflects the return of underlying commodity futures price movements only. It is quoted in USD.

The Bloomberg Bitcoin Index measures a single bitcoin's USD performance, using DAR's vetted price, calculated as a time-weighted average, and is priced in USD.

The Morningstar US Evergreen Fund Indexes are derived from Morningstar global unlisted closed end funds universe. To qualify, funds must be US-registered, with an inception date of at least three months and total net assets of at least $25 million. The index breaks out by underlying investment strategies, including private credit, real estate, infrastructure and private equity. The indexes use institutional share classes and are asset-weighted. Returns are calculated monthly and the indexes are reconstituted and rebalanced quarterly to reflect changes. The indexes require a minimum of five funds.

These indexes are designed as peer group benchmarks and carry inherent limitations. They are ex-post by nature and may be affected by survivorship and composition biases, variability in reporting and disclosure, and lag effects related to the timeliness of fund updates. Investors should carefully consider these when using the index.

The index of leading economic indicators is a composite of 10 forward-looking components including building permits, new factory orders, and unemployment claims. The report attempts to predict general economic conditions six months out.

MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

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.

S&P 500 Consumer Staples Index comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.

S&P 500 Health Care Index comprises those companies included in the S&P 500 that are classified as members of the GICS® health care sector.

S&P 500 Information Technology Index comprises those companies included in the S&P 500 that are classified as members of the GICS® information technology sector.

As of June 30, 2025, the private debt index includes 99 funds, totaling $194 billion assets; the private real estate index includes 27 funds, totaling $78 billion assets, and the private equity index includes 11 funds, totaling $10 billion assets.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this 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. GIS 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 reports or have 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 or best interest 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. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee to its accuracy or completeness.

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