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Monthly Investment Outlook | Our take on equities in the second half

Wells Fargo Investment Institute - August 23, 2021

Presenter: Sameer Samana, CFA, Senior Global Market Strategist, Wells Fargo Investment Institute

Transcript: Wells Fargo Investment Institute Monthly Outlook - August 2021

As we enter the second half of 2021, there are quite a few cross-currents affecting the markets despite the overall solid economic and earnings recovery. COVID-19 still dominates the headlines, mainly due to new variant cases, there is talk of peaking economic and earnings growth rates, the Federal Reserve (Fed) is beginning to reevaluate their easy policy stance, and wrangling continues in D.C. over additional rounds of fiscal spending.

Here is our take. We think the second half of this year holds the potential for more equity market gains, and we still see a resurgence in the reopening and recovery trade as three things happen:

1. Congress passes additional fiscal stimulus

2. Additional vaccinations and progress towards herd immunity make COVID less of a market driver

3. And the Fed will lay the groundwork for tapering bond purchases, which will allow yields to drift higher

We believe that these factors will work together to show investors concerned about peak growth rates that the economy can keep powering through the winter months, and support strong levels of earnings growth. This will be enough to drive equity markets higher, and the more cyclical areas like small caps, Industrials, Financials, and Materials should outperform.