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Investment Strategy

Published July 22, 2024 | 10 min read time

Weekly market insights and possible impacts on investors from the Wells Fargo Investment Institute Global Investment Strategy team.

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Asset Allocation Spotlight: Evaluating performance of our capital market assumptions

  • As part of the capital market assumptions (CMA) formulation process, we reviewed the performance of our 2014 CMAs over the past decade.
  • Overall, we found expected returns and risk generally higher than actuals, yet rankings for most asset classes aligned with realized performance.

Equities: High bar for second-quarter earnings

  • Second-quarter earnings season is upon us, and Bloomberg consensus is calling for S&P 500 Index profits to expand for the fourth consecutive quarter.
  • We maintain our view that U.S. Large Cap Equities (represented by the S&P 500 Index) is the highest-quality equity asset class, with generally strong company balance sheets, durable pricing power, and resilient earnings-growth potential.

Fixed Income: Interest expense nears previous peak

  • Interest expense as a percentage of the federal budget has increased considerably in recent years, but we have experienced higher levels in the past.
  • Higher rates as a result of both higher inflation and increased Treasury issuance provide investors with an opportunity to earn more yield from fixed-income investments. Our guidance currently is most favorable for investment-grade U.S. Short Term Taxable Fixed Income.

Real Assets: Gold climbs to all-time high on soft inflation data

  • Gold prices recently climbed to new all-time highs, above $2,400 per troy ounce on July 16, as softer inflation data looks to be paving the way for potential interest rate cuts by the Federal Reserve later in 2024.
  • We remain favorable on Precious Metals — fundamentals look solid, and the sector has historically shown strong performance after the start of past Federal Reserve easing cycles.

Alternatives: Hedge funds post strong returns through first half

  • Despite trailing the broad large-cap equity benchmarks, many hedge fund categories performed well through June — top performers included the Systematic Macro and Equity Hedge strategies.
  • Relative Value strategies also performed well, posting low- to mid-single digit returns against a backdrop of slightly negative global fixed-income performance.

Article written by:

Investment Strategy Analyst
Global Investment Strategist

Global Equity Strategist
Head of Global Fixed Income Strategy
Investment Strategy Analyst
Head of Real Asset Strategy

Global Alternative Investment Strategist