The Wells Fargo Investment Institute published its 2023 Midyear Outlook: Navigating End-of-Cycle Turbulence.
The report advises investors to maintain a defensive portfolio positioning in anticipation of the current economic slowdown transitioning into a moderate recession in the latter half of 2023 and throughout 2024, according to a June 15 news release.
“Protecting capital during more challenging times is often as important, or more important, than growing capital,” Darrell Cronk, chief investment officer for Wells Fargo Wealth and Investment Management, said in the release.
WFII acknowledges the likelihood of a gradual global recovery led by the United States as 2024 progresses, urging investors to grasp the evolution of recessions and strategically position themselves for an eventual recovery in 2024, the release reported.
“There will come a time to turn more opportunistic in positioning portfolios for a recovery; however, we need to respect the signals and understand when the risk and reward dynamic changes,” Cronk added, according to the release.
The WFII expects increased volatility in the coming months, particularly as financial conditions tighten during the second half of the year, the release reported. WFII forecasts a decline in earnings for 2023 and a temporary halt in corporate revenue growth due to an economic recession.
However, as the economic recovery gains momentum, profits are projected to rebound throughout 2024, the release said. It may take until early 2025 for corporate earnings to fully recover to their peak levels observed in 2022.
Highlights of the report include that the anticipated U.S. gross domestic product growth target for 2023 year-end is 1.1%, and 1.5% for 2024, according to the release. The WFII report said the S&P 500 Index will be relatively flat into year-end with stock prices rebounding in 2024.
The report expects inflation is likely to drop below 3% in 2023 and through 2024, with a target in 2023 of 2.9% and slightly down to 2.8% in 2024, the release said.
