Wells Fargo Investment Institute (WFII) has released its “2024 Midyear Outlook: Approaching the Economy’s Pivot Point,” which outlines the belief that the positive market momentum at the start of 2024 was driven by artificial intelligence, anticipated Federal Reserve (Fed) rate cuts, declining inflation, and the resumption of durable earnings growth. WFII strategists emphasize five critical points likely to influence the market over the next 18 months.
Key Points:
- Inflation: Consumer Price Index inflation has decreased from a high of 9.1% in June 2022 to a range of 3% – 4%. The U.S. economy is slowing, which should further reduce inflation and prompt Fed rate cuts. WFII’s base case expects inflation to drift mildly lower but struggle to reach the Fed’s 2.0% to 2.5% target.
- Interest Rates: Initially, markets anticipated five or six interest rate cuts this year. However, midyear projections now expect fewer 2024 Fed rate cuts and continued higher interest rates.
- Liquidity: Government stimulus packages and a growing federal budget deficit have pumped significant liquidity into the economy, leading to all-time highs in various indices and assets, including the S&P 500, Japan’s Nikkei 225, Germany’s DAX, bitcoin, and gold. There has also been strong demand for U.S. Treasuries and investment-grade corporate bonds.
- Earnings: Equity prices typically reflect expectations for future earnings growth. WFII anticipates broad-based earnings growth, supporting additional gains for major U.S. equity benchmark indices over the next 18 months.
- Global Landscape: Significant potential market movements may arise from global events. The escalating war in the Middle East, ongoing conflict in Ukraine, and slowing growth in China are key factors. The U.S. dollar has also remained stronger for longer than expected.
Quotes:
“As we recalibrate our outlook for the back half of 2024, our guidance remains focused on high-quality investments in both equities and fixed income,” said Darrell Cronk, Chief Investment Officer for Wells Fargo Wealth & Investment Management. “Quality investments have performed well, and we expect that to continue, as geopolitical risks, market volatility, and November elections will influence market paths in the latter half of the year.”
Forecast Highlights:
- U.S. GDP growth target for year-end 2024: 2.5%; 2025: 2.1%
- U.S. consumer price inflation target for 2024 and 2025: 3%
- S&P 500 Index price target range for year-end 2024: 5,100 – 5,300; 2025: 5,600 – 5,800
- Anticipated interest rate cuts: Two later this year, one in 2025
- Federal funds rate forecast for 2024: 4.75% – 5.00%; 2025: 4.50% – 4.75%
The full report provides detailed guidance for investors to navigate the next 18 months, including economic and market forecasts, areas of opportunity, and portfolio ideas. Insights on equities, fixed income, real assets, and alternative investments are also included.
WFII 2024 Midyear Outlook Call:
Date: June 12 at 4:15 p.m. Eastern Time
Dial-in: 877-601-6604
Passcode: 71-306-44
A summary of the WFII 2024 Midyear Outlook is available in PDF format.
Investment and Insurance Products:
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- Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested
Risk Disclosure:
Forecasts and targets are based on certain assumptions and our current views of market and economic conditions, which are subject to change. All investments involve risks, including the possible loss of principal. There is no assurance that any investment strategy will meet its objectives. Investments fluctuate with market and economic conditions and due to numerous factors, some of which may be unpredictable. Asset allocation and diversification do not guarantee returns or eliminate risk of loss.
Stock markets, especially foreign markets, are volatile. A stock’s value may fluctuate in response to general economic and market conditions, company prospects, and industry sectors. International investing has additional risks, including currency fluctuation, political and economic instability, and different accounting standards, leading to greater share price volatility. These risks are heightened in emerging and frontier markets. Investments in fixed-income securities are subject to market, interest rate, credit, liquidity, inflation, prepayment, extension, and other risks. Bond prices fluctuate inversely to changes in interest rates; a general rise in interest rates can result in a decline in bond prices.
The information provided constitutes general information and is not tailored to any specific investor. 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 primary basis for investment decisions. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon.
