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Investors Should Stay in Equities as Wells Fargo Sees Stock Markets Bringing ‘Modest Returns’ Next Year

Investors should get ready to stay in equity markets rather than take profits into the year end as Wells Fargo Investment Institute is expecting modest growth and a mid-single-digit price return for the Standard & Poor’s 500 over the next year.In a note on Wednesday, Senior Global Equity Strategist Scott Wren said the longer-term historical trend in markets is a move higher and trying to time the markets can be problematic.

“As the global economy has grown, companies have participated. The stock market has reflected this participation. We do not expect that trend to fade in the coming decades,” Wren said. “From our perspective, individual investors should stay the course and expect modest returns in 2020.”

The S&P 500 has touched record highs this year even amid disputes about trade and worries over economic growth that in part prompted the Federal Reserve to cut the target range on its benchmark lending rate three times this year. The Fed kept the rate on hold Wednesday and indicated that no changes are expected through 2020.

“We think the likely environment ahead features modest growth with only modest inflation and a Federal Reserve that does not make a monetary policy mistake,” Wren said.

Equity valuations are seen by Wells Fargo as fair, “based on the level of interest rates and the growth outlook,” the strategist said. Stock sectors including technology, consumer discretionary and financials are poised to benefit from the continued expansion, he added.

“We believe the consumer-oriented segments of the economy should continue to benefit from a robust labor market where the unemployment rate is at a 50-year low and wages are growing north of 3%,” Wren said. “We do not want to count out the American consumer. If trade tensions ease a bit from here, companies may also choose to boost capital spending, which could further add to economic growth.”

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