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Introducing Our 2018 Year-End Targets

Wells Fargo Investment Institute - September 2017

With the new year quickly approaching, Wells Fargo Investment Institute (WFII) has released its 2018 year-end forecasts. Brian Rehling, Co-Head of Global Fixed Income Strategy, discusses WFII’s economic outlook and asset-class expectations.

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Transcript: Introducing Our 2018 Year-End Targets

With the new year quickly approaching, we’ve released our 2018 year-end forecasts. Looking ahead, we believe that the synchronized global recovery that took hold this year should gain in 2018.


We foresee slow but steady U.S. economic growth, but a bit stronger growth overseas. Differences in monetary policies should promote moderate inflation in developed economies, but easing inflation in emerging economies. Stable commodity prices and gradual gains in shelter and service price inflation should lead to a continued slow U.S. inflation uptrend. Overall, low inflation and steady economic growth should generate more jobs and point to a lower U.S. unemployment rate.


Title graphic: Asset-Class Expectations

Stronger earnings should fuel U.S. and international equity markets. We continue to anticipate more volatility for domestic equities during the remainder of the year, but foresee an earnings-driven rebound in stocks next year. Our 2018 year-end S&P 500 Index target is 2450-2550.


We expect the Federal Reserve to continue tightening monetary policy slowly and deliberately in 2018; we look for two increases in the federal funds rate next year in addition to an expected rate increase late this year. That puts our fed funds rate target at 1.75-2.00% by year-end 2018. We continue to project a positively sloped curve at year end—suggesting that more gas remains in the economic tank. Our 2018 year-end target for the 10-year Treasury is 2.50-3.00%.

Excess global commodity supply should hold key commodity prices within their 2017 ranges. Our target for West Texas Intermediate Crude oil is $40-$50. We believe that this year’s gold rally will begin to fade as we begin 2018, but there’s always the chance that political risks worldwide could keep gold higher for longer. We expect gold to finish 2018 at $1,150-$1,250.


Title graphic: Investor Implications

Political uncertainty poses the primary risk to our economic forecasts. U.S. tax reform could materialize in the first few months of 2018. In that case, sentiment, economic growth, and inflation could rise more than we forecast. By contrast, global economic activity may suffer if U.S. trade policy turns restrictive. Negative political shocks could cool economic growth and guide inflation lower.


Overall, we see modest returns across most asset classes in 2018. As a result, we recommend that investors focus on quality, rebalance regularly, and remain globally diversified.

There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. 

Disclosures

The opinions expressed reflect the judgment of the speaker as of the recording date and are subject to change without notice. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results. Additional information is available upon request.


Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. 

Wells Fargo Advisors is registered with the U.S. Securities Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S.  Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.


Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

CAR 0917-00334

©2017 Wells Fargo Investment Institute. All rights reserved.