Wells Fargo Investment Institute released its 2018 midyear outlook report, “Late Cycle Doesn’t Mean End of Cycle.” The report makes the case that the economic recovery, which coincides with the equity bull market, has more room to run.

The report details where the institute says bond investors should be positioned on the yield curve as the Federal Reserve hikes rates. It also describes near-term opportunities in U.S. equities and suggests that the environment is becoming more favorable for select alternative investment strategies.

“The first half of the year certainly delivered on our outlook’s anticipated market volatility, but there are a variety of indicators that convince us the bull market could run for another year or longer. Investors need to remain diligent to higher interest rates and growing trade tensions,” said Darrell Cronk, president of Wells Fargo Investment Institute and chief investment officer of Wealth and Investment

The report also outlines three strategies for investors to consider. They include:

• Stay invested in the U.S. late-cycle expansion. A preference for stocks over bonds, and U.S. equities over international.
• Weigh risk and reward even more carefully than usual. Opportunities in high-quality short-term debt, while being mindful of risk in U.S. high-yield and international developed-market bonds.
• Take advantage of volatility. Diversification strategies to prepare for geopolitical uncertainty and late-cycle market volatility.

“We expect strong economic growth to support earnings and to guide the equity market higher through at least the first quarter of 2019, and possibly longer,” said Paul Christopher, head of global market strategy for the Wells Fargo Investment Institute. “Yet we expect volatility to continue through the end of 2018 and continue to closely watch for geopolitical events, Fed policy and global economic surprises.”