According to the Wells Fargo Investment Institute’s 2020 midyear outlook, there will be a deep but short recession and a gradual U.S. economic recovery beginning in the second half of 2020. The outlook provides insights about the global economy, equities, fixed income, real assets and alternative investments. In addition, the institute extends its economic and market forecasts and risks for the rest of the year and through 2021.
“The current economic recession is historic for its depth, but governments are responding proportionately and with speed and growing global coordination. Nonetheless, these jarring events will impact portfolios far into the future,” Darrell Cronk, president of the Wells Fargo Investment Institute and chief investment officer of Wells Fargo wealth and investment management, said. “The task of our midyear outlook report is to examine the contours of change and how we believe investors should adapt.”
The Wells Fargo Investment Institute expects low interest rates, low inflation and U.S. equity outperformance among global equity markets, especially in large- and mid-cap equities. The S&P 500 Index target range is 3,150 to 3,350 for year-end 2020 and 3,400 to 3,600 for year-end 2021. The report also points out risks to the forecasts, such as a new surge in COVID-19 infections and the weight of accumulated bankruptcies and unemployment.
“Many risks and opportunities will arise. Therefore, it is important to maintain a temperament of resilience and flexibility,” Cronk said.
The report outlines five main themes that are already changing how investable markets interact with the economy. Investors should consider the following in the next three to five years:
- Consumption patterns are likely to change.
- Businesses will reassess how to add flexibility while maintaining efficiency.
- The pandemic is likely to intensify existing stresses globally.
- Government influence in the economy will increase — for better or worse.
- Healthcare will play an increasingly prominent role in the future.
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“We believe the pandemic will likely affect the path and speed of the recovery in the coming 12 to 18 months,” Tracie McMillion, head of global asset allocation strategy for the Wells Fargo Investment Institute, said. “Investors should consider adapting their portfolios to those five secular changes from the pandemic.”
The Wells Fargo Investment Institute is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank.
