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Monthly Investment Outlook | Beyond peak growth

Wells Fargo Investment Institute - September 21, 2021

Presenter: Tracie McMillion, CFA, Head of Global Asset Allocation, Wells Fargo Investment Institute


Growth and earnings are slowing, so is it time to reduce equities in favor of other asset classes? We say no — slowdowns have been a normal part of recoveries. Historically, as the economy exits a recession, growth surges, the rate of growth peaks, we exit the recovery phase, and start a new expansion.

If the recovery develops as we expect, here are five asset allocation ideas that we think are important for investors to consider:

  1. Increase U.S. large- and small-cap equities relative to target allocations.
  2. Within equities, we favor cyclicals and growth over defensive sectors.
  3. Reduce allocations to short- and long-term U.S. investment-grade fixed income. Keep duration neutral.
  4. Increase allocations to commodities and Equity Hedge strategies where appropriate.
  5. Hold minimal cash in investment accounts.

We believe that any weakness in equity markets is buyable, and that investors should not get too defensive at this point in the economic cycle.