Wells Fargo Investment Institute 2023 Outlook: A Year of Recession, Recovery, and Rebound

Rhea-AI Summary

This report from Wells Fargo Investment Institute forecasts economic trends for 2023, predicting a recession in the first half, recovery mid-year, and a stronger rebound by year-end. Key insights include a potential decline in inflation to below 3%, a projected U.S. GDP contraction of -1.3%, and an S&P 500 Index target range of 4,300 to 4,500 by year-end. The federal funds rate is expected to peak above 4.50% before dropping to 3.50%-3.75%. The report emphasizes volatility but suggests opportunities for investment repositioning as recovery emerges.

Positive

• Inflation expected to decline to under 3% by year-end 2023.
• S&P 500 Index anticipated to rise to 4,300 - 4,500 by end of 2023.
• Federal funds rate forecasted to drop to 3.50% - 3.75% after peaking.

Negative

• Projected U.S. GDP contraction of -1.3% for 2023.
• Expected volatility and challenges for investors during the economic transition.

2023 Outlook report looks closely at inflation, interest rates, and corporate earnings

SAN FRANCISCO--(BUSINESS WIRE)-- Wells Fargo Investment Institute (WFII) has released its “2023 Outlook: Recession, Recovery, and Rebound,” which outlines WFII’s expectations for a recession in the first half of 2023, recovery around midyear, and a rebound that gains strength into year-end.

Wells Fargo Investment Institute 2023 Outlook (Graphic: Wells Fargo)

The report looks closely at three key drivers: inflation, interest rates, and corporate earnings. WFII believes that the decline of inflation will be a dominant theme in 2023, shaping the trajectory of economic growth and interest rates. Highlights of WFII’s forecast include:

• A recession and unwinding of inflationary shocks of the past 18 months could allow inflation to decline to under 3% on a year-over-year basis by year-end 2023.
• A moderate recession in the first half of 2023 may lead to a contraction for the year as a whole, marked by -1.3% U.S. GDP (gross domestic product) growth.
• Once investors begin to anticipate economic and earnings recovery, the S&P 500 Index is forecasted to gain into year-end. S&P 500 Index target range is 4,300 – 4,500 for year-end 2023.
• Federal funds rate forecast of 3.50% – 3.75% anticipates multiple policy interest-rate reductions after rates reach a peak above 4.50% early in 2023.

“The unfavorable risk-reward balance in both equities and fixed income jolted portfolio performance in 2022 and tilted our guidance more defensively for most of the year,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “And while we expect an economic recovery after midyear, we anticipate 2023 will be a volatile and challenging year for investors as we transition from a recession to a recovery, yet we believe that it may create strong opportunities to reposition for growth and back into a more pro-risk stance as the next economic recovery and bull market emerges.”

The report provides advice and guidance, economic and market forecasts, where WFII sees opportunity, and five portfolio ideas for the coming year.

Investment and Insurance Products are:

• Not Insured by the FDIC or Any Federal Government Agency

• Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate

• Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested

Risk Disclosure

Forecasts and targets are based on certain assumptions and on our current views of market and economic conditions, which are subject to change.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential 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.

All investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful and meet its investment objectives. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Asset allocation and diversification do not guarantee investment returns or eliminate risk of loss.

About Wells Fargo Investment Institute

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a leading financial services company that has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is a leading middle market banking provider in the U.S. We provide a diversified set of banking, investment, and mortgage products and services, as well as consumer and commercial finance, through our four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth & Investment Management. Wells Fargo ranked No. 41 on Fortune’s 2022 rankings of America’s largest corporations. In the communities we serve, the company focuses its social impact on building a sustainable, inclusive future for all by supporting housing affordability, small business growth, financial health, and a low-carbon economy.

News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

Additional information may be found at www.wellsfargo.com | Twitter: @WellsFargo.

CAR-1222-04144

News Release Category: WF-ERS

View source version on businesswire.com: https://www.businesswire.com/news/home/20221208006011/en/

Media

Sarah Kerr, 917-588-5919

sarah.kerr@wellsfargo.com

Source: Wells Fargo & Company

FAQ

What does Wells Fargo's 2023 outlook predict for inflation?

Wells Fargo's 2023 outlook predicts inflation may decline to under 3% by year-end.

What is the forecast for the S&P 500 Index according to Wells Fargo's 2023 report?

The forecast for the S&P 500 Index is a target range of 4,300 to 4,500 by the end of 2023.

What GDP growth is expected for the U.S. in 2023?

Wells Fargo projects a U.S. GDP contraction of -1.3% for 2023.

What is the expected federal funds rate range in 2023?

The expected federal funds rate range in 2023 is 3.50% to 3.75%, following a peak above 4.50%.

How does Wells Fargo describe the investment climate for 2023?

Wells Fargo describes the investment climate as volatile and challenging during the transition from recession to recovery.