Chart of the Week

Foreign investment in U.S. securities has tilted increasingly from Treasury and other debt to U.S. equities, whose purchases soared to an average $107 billion per month in the June-August period from $75 billion in the first half of 2026 while purchases of U.S. Treasuries and other debt securities slowed.

On the positive side, the rotation by foreign investors toward equities reduces their exposure to U.S. interest-rate risk on bond portfolios. These risks have increased amid concerns over the U.S. budget deficit, stepped-up government and corporate borrowing, and interest rates at a 19-year high. There is also the $24 trillion increase in the group’s equity-related wealth and spending power tied to the stock market’s powerful rally since 2023. Lastly, the rise in foreign investment contributing to the stock market rally helps lower equity-financing costs.

Investors also face downside risks from the foreign tilt toward equities by slowing demand for U.S. debt at a time of rising borrowing needs. In addition, a growing tilt toward equities could increase market swings if changing conditions eventually encourage foreign investors to shift their portfolios back toward their historical mix of debt and equities. Lastly, a shift by foreign investors from perceived safe-haven U.S. Treasury debt to more highly charged U.S. equities risks a spillover to greater U.S. dollar volatility.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.

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 Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information 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.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest 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. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee to its accuracy or completeness.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.