Wells Fargo Sees Second Half as a ‘Grind’ With Elevated Volatility, Low Single-Digit Returns

Returns for most asset classes are expected to be in the low single-digit area for the second half of the year, with periods of high volatility and potential for “speed bumps” over several domestic and international issues, according to the Wells Fargo Investment Institute.

While a Federal Reserve interest-rate cut seems “all but confirmed” for the end of July, investors aren’t chasing equities higher as risks remain, said Darrell Cronk, chief investment officer of the advisory arm of Wells Fargo (WFC).

“We believe the second half could be a grind with periods of elevated volatility,” Cronk said in a note on Monday.

Stocks rallied to record highs this month as investors’ expectations for a Fed rate cut grew to a near certainty, with the debate revolving around the magnitude of the reduction.

“US equity markets are posting record highs, and the economy is clocking its longest expansion in post World War II history,” Cronk said. “Yet investor exuberance remains absent as narrow equity market breadth, weak fund flows, and negative earnings revisions persist.”

The four key issues facing investors in the second half include the US-China trade dispute, which Wells Fargo believes will be resolved, but could stretch into 2020.

The Fed’s rate cuts are another source of uncertainty, with markets pricing in as much as 100 basis points of reductions over the next 12 months, Cronk said.

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