As the stock market reels with the changing macroeconomic conditions, Wells Fargo is advising long-term investors to capitalize on the recent market pullback by favoring high-quality equities, particularly within the energy sector and large- and mid-capitalization stocks.
What Happened: Scott Wren, senior global market strategist at Wells Fargo, acknowledged that “With the pace of change on the tariff and geopolitical fronts moving fast and sometimes adjusting on a day-to-day basis, investors are wondering what they might do to help navigate the uncertainties.”
He has advised investors to maintain their exposure in higher-quality equities and fixed income. He highlights the importance of making a plan to weather the market volatility while seeking growth opportunities. “The first rule of thumb for our plan is to focus on quality in a diversified manner.”
Since the larger-capitalization companies have stronger balance sheets, more dependable cash flows, easy access to credit, and an ability to buy back shares, Wren says, “We continue to favor large- and mid-capitalization equities over small-cap.”
Furthermore, he highlights that Wells Fargo favours the energy sector and also has favorable ratings on Information Technology, Financials, and Communication Services.
“We believe these sectors feature long-term growth drivers and robust balance sheets. We suggest investors put funds to work in these sectors at current market levels. In our view, the pullback in stocks offers long-term investors an attractive entry point.”
Why It Matters: Additionally, Wren forecasts that the Federal Reserve will cut interest rates three times this year “if growth slows and the unemployment rate ticks higher as we expect.”
Talking about fixed income investments, he adds, “Our approach in the fixed-income market is to be selective and focus on investment-grade corporate bonds and essential-service municipal bonds in the three to seven-year maturity range.”
According to him, the near-term road will “likely be bumpy,” with policy and geopolitical headlines driving financial markets on a day-to-day and week-to-week basis.
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Wednesday. The SPY was up 1.55% to $535.42, while the QQQ advanced 2.27% to $454.561, according to Benzinga Pro data.
In premarket on Thursday, SPY was 0.42% lower, whereas QQQ dropped 0.60%.
As of Wednesday, the Nasdaq 100 index was down 15.88% from its previous high of 22,222.61 points. The S&P 500 index was 12.55% lower, as compared to the last record high of 6,147.43 points. On the other hand, Dow Jones was 12.13% down from its 52-week high of 45,073.63 points.
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