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Market Commentary

July 22, 2015

Scott L. Wren, Senior Global Equity Strategist

Weekly update on current stock market action

  • We are anticipating better-than-expected second-quarter earnings results and have been making investment recommendations based on this analysis for quite some time. The consensus, based on our work, is not optimistic enough.

What it may mean for investors

  • We believe opportunity still exists for those holding sidelined funds intended for eventual investment in the equity markets. Stock valuations, in our opinion, are still reasonable. Take advantage of the volatility we are anticipating.

Not Data Dependent.

Earlier this year, I wrote in this same weekly publication that, on second thought, maybe it was a good thing the Federal Reserve (Fed) was being “data dependent” in this cycle when it came to making monetary policy decisions. My reasoning wasn’t complicated. Over the course of the last few years, our central bankers have consistently overestimated the economic rebound’s strength and projected inflation rates meaningfully higher than what has actually occurred. Had they acted based on their collective expectations, interest rates would likely have been hiked long ago. And who knows, by now another round of quantitative easing may very well have been launched in an attempt to ward off slower growth and deflationary fears that might have resulted from these policy mishaps.

You see, over the past 25-plus years I have been regularly frustrated by central bankers who would, in my opinion, keep interest rates too low for too long after the economy had come out of a recession. That allowed the economy to get up and running at a robust pace and inflationary pressures to “heat up.” Easy money tends to do that in nearly every cycle. The Fed traditionally didn’t shoot until it saw the whites of inflation’s figurative eyes, and by then it found itself trying to play catch-up with interest rates. By the time the Fed began to act, to use another popular phrase, the horse was already out of the barn.

Then, on the other side of the cycle, the Fed frequently left rates too high for too long while it was waiting for data to clearly show the economy was slowing. Again, this lack of decision-making based on forward-looking projections often caused the U.S. central bank to react too slowly to changing conditions. As a result, the domestic economy typically rolled over and slipped into a recession or a meaningful slowdown. And there you have a brief lesson in the economic cycle’s ebb-and-flow. But this strategist shouldn’t complain; the cycle is what keeps stock analysts employed. After all, it is this ebb-and-flow that creates opportunities in equities.

Our strategy group takes a different path than the Fed. We are in the business of anticipation. We strive to do the analysis and make economic and stock market projections and then help position our clients properly before it is clear to the overall investing public what the upcoming trend is going to be. That is what strategists do. If we wait to get positioned until there is little question about where the market is going and how it is going to get there, you can rest assured that much of the underlying opportunity will have passed us by.

Our clients expect us to seek out opportunities and take advantage of them before they become apparent to everyone else. For example, we are looking forward to seeing how the current second-quarter earnings reporting season plays out. We want to see the results and hear the outlooks from company management. But we have long been positioned based on our projection of where we think earnings are going this year. We are not like the Fed; we are not data dependent. Our job is to anticipate.

Scott WrenAbout Scott Wren

Scott Wren is a senior global equity strategist for Wells Fargo Investment Institute (WFII), an organization that provides global manager research and investment strategy advice to Wells Fargo’s Wealth, Brokerage, and Retirement (WBR) division. WBR is comprised of Wells Fargo Private Bank, Wells Fargo Advisors, Wells Fargo Institutional Retirement, and Abbot Downing businesses, accounting for more than $1.6 trillion* in assets under administration.

Mr. Wren produces strategy and guidance recommendations for global equities. With his knowledge of the financial markets, he is often quoted in national media outlets including Reuters, The Chicago Tribune, The Los Angeles Times, The Washington Post, The Associated Press, and The Wall Street Journal. He has appeared in interviews on CNBC, Bloomberg TV, Fox Business News, and Nightly Business Report. Prior to joining Wells Fargo Advisors predecessor A.G. Edwards in 1998, Mr. Wren worked as a senior foreign exchange dealer for The Boatmen’s National Bank of St. Louis. He began his career on the trading floor of the Chicago Mercantile Exchange and has more than 25 years of experience in financial services.

He received a Bachelor of Science in Business Administration from the University of Kansas and a Master of Finance from Saint Louis University. He is located in St. Louis, Missouri.

*As of Sept. 30, 2014

Risk Factors

Any investment in the stock market should be made with an understanding of the risks associated with investments, including market fluctuations.


Global Investment Strategy (“GIS”) is a division of Wells Fargo Investment Institute, Inc. (“WFII”). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by the GIS division of WFII. Opinions represent GIS’ opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

Additional information available upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice.

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