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Investment Strategy

Published May 30, 2023 | 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: Where debt-ceiling deliberations stand

  • To be clear, our base case is still for a near-term agreement in Congress to raise the debt ceiling.
  • A tense debt-ceiling negotiation process is not unusual. We believe constructive talks will continue, and the risk of default appears low.

Equities: Debt ceiling Q&A: Equities

  • We do not favor making any broad portfolio changes in response to the potential for near-term volatility related to debt ceiling negotiations.
  • In the event stock prices rise further toward the top end of the recent trading range on a debt ceiling deal, we would use that as an opportunity to trim exposure.

Fixed Income: Fixed-income implications of a potential debt default

  • U.S. Treasuries are still perceived as a safe haven, and during periods of risk aversion, Treasury securities have historically rallied (yields decline and prices increase).
  • We anticipate near-term repercussions of failure to reach agreement to raise the debt ceiling likely would include credit rating downgrades, higher interest costs, and less demand from foreign buyers.

Real Assets: Commodity bull lessons learned

  • Precious metal and agricultural commodities, which underperformed in 2022, have been the best performers year-to-date in 2023.
  • Changes in performance leadership have historically been common during bull super-cycles.1 We continue to favor a general basket of commodities for portfolio exposure.

Alternatives: Discounted secondary markets may present an opportunity

  • We believe secondary markets may potentially offer several opportunities, including improved visibility in the underlying portfolio holdings, a shortened path to achieving positive returns, and shorter life span (relative to primary fund positions).
  • In our view declining secondary market valuations may present an opportunity to allocate to a skilled investment manager that seeks to identify high-quality portfolios believed to be selling at attractive prices.

1 Bull super-cycles are an extended period of time, historically 15-20 years, where commodity prices move upward together.

Article written by:

Investment Strategy Analyst
Global Investment Strategist

Investment Strategy Analyst

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

Global Alternative Investment Strategist