Wells Fargo says five pivot points in the US economy will drive growth for 18 months

Wells Fargo says five pivot points in the US economy will drive growth for 18 months
CIO sees growth for both equities and fixed income, with the right choices.
JUN 13, 2024

As 2024 began there was plenty of concern about the U.S. economy, not least the worrying potential of recession.

But since, there has been resilience and growth to the point where the Fed has softened its stance on rate cuts to just a single change this year. So what next as we approach the second half of the year and into 2025 where further rate cuts are expected?

Wells Fargo Investment Institute, the RIA subsidiary of Wells Fargo Bank, has published its midyear outlook in which it cites the pivot points that have driven the economy since the start of 2024, and those which it believes will do so for the next 18 months.

Artificial intelligence, anticipated Fed rate cuts, declining inflation, and the resumption of durable earnings growth, combined to drive the positive momentum at the start of the year, the report says. And looking ahead, the following five pivot points will be in play:

  1. 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 this year and should further cool inflation and prompt Fed rate cuts. As we look out 18 months, our base case calls for inflation to drift mildly lower but struggle to land the Fed’s 2.0% to 2.5% target.
  2. Interest rates — Coming into this year, markets anticipated as many as five or six interest rate cuts. Now at midyear, the market has shifted expectations and anticipates fewer 2024 Fed rate cuts and projects continued higher interest rates.
  3. Liquidity — In the first half, we saw the effect of government stimulus packages and a ballooning federal budget deficit on asset prices as large amounts of liquidity were pumped into the economic engine. That led to all-time highs in the S&P 500 Index, Japan’s Nikkei 225 Index, Germany’s DAX Index, bitcoin, and gold. Even strong issuance of U.S. Treasuries and U.S. investment-grade corporate bonds was met with robust demand as liquidity actively searched for a home across all asset classes.
  4. Earnings — Equity prices generally reflect expectations for future earnings growth, and there is the potential for more broad-based growth going forward. We expect earnings growth to support additional gains over the next 18 months for the major U.S. equity benchmark indices.
  5. Global landscape — Possibly the greatest potential for a market-moving pivot comes on the world stage. The war in the Middle East has escalated, and the war in Ukraine continues. Also, slowing growth in China has been a headwind for emerging market equities, and the U.S. dollar has remained stronger for longer than most expected.

For investors, the midyear outlook says that portfolio construction that includes equities and fixed income should benefit from conditions going forward, while the firm says defensive hedge funds and private capital strategies can offer diversification benefits, generate counter-cyclical returns, or offer a quality bias, at least until recovery picks up when long/short equity and activist equity strategies may be appropriate.

“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 will continue — as geopolitical risks, market volatility, and November elections will have much to say about the path for markets in the second half of the year.”

Latest News

Buy or sell Canada? Wealth managers watch carefully as Canadians head to the polls
Buy or sell Canada? Wealth managers watch carefully as Canadians head to the polls

Canadian stocks are on a roll in 2025 as the country prepares to name a new Prime Minister.

How are tech-boosted advisors spending their "time tax refund"?
How are tech-boosted advisors spending their "time tax refund"?

Two C-level leaders reveal the new time-saving tools they've implemented and what advisors are doing with their newly freed-up hours.

Indivisible Partners selects DPL to arm advisors for insurance business
Indivisible Partners selects DPL to arm advisors for insurance business

The RIA led by Merrill Lynch veteran John Thiel is helping its advisors take part in the growing trend toward fee-based annuities.

RIA M&A stays brisk in first quarter with record pace of dealmaking
RIA M&A stays brisk in first quarter with record pace of dealmaking

Driven by robust transaction activity amid market turbulence and increased focus on billion-dollar plus targets, Echelon Partners expects another all-time high in 2025.

New York Dems push for return of tax on stock sales
New York Dems push for return of tax on stock sales

The looming threat of federal funding cuts to state and local governments has lawmakers weighing a levy that was phased out in 1981.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.