Wells Fargo (WFC) said Wednesday that stocks and bonds have risen more than what underlying fundamentals justify and although valuations aren't extremely high, they are stretched.
Analyst Scott Wren said that with a presidential election approaching in less than seven weeks and a historically weak period for equities, Wells Fargo Investment Institute aims to capitalize on any weakness in the S&P 500. The investment firm is repositioning investments from fixed income short- and long-term to intermediate maturities and stocks.
"For now, we want to continue to focus on higher-quality equity and fixed-income segments of the market as we foresee economic weakness in the immediate quarters ahead before the skies start to clear a bit," Wren said.
The Federal Reserve is expected to start a series of rate cuts in the coming meetings this year and next, and Wells Fargo predicts a total reduction of 175 basis points by the end of 2025. The bank also expects the S&P 500 Index to be range-bound in the coming months. When the index peaks this range, investors will reduce their positions in sectors like Real Estate, Utilities, Consumer Discretionary, and Consumer Staples.
"Uncertainty often results in opportunity. We believe 2025 may offer investors an improving economy that is benefitting from Fed rate cuts," Wren said. Investors should prepare a portfolio "to-do list" and gear up to make allocation changes as opportunities come up.
Price: 54.74, Change: +0.23, Percent Change: +0.42
