1、December 20222023 Outlook Recession,recovery,and reboundInvestment and Insurance Products:uNOT FDIC InsureduNO Bank GuaranteeuMAY Lose Value2|2023 OutlookRecession,recovery,and reboundDecember 2022As investors,we gladly close the books on 2022.Equity and bond benchmark indexes posted deeply negative

2、 returns this past year,a double dose of disappointment unmatched over the past 50 years.While not unusual for equities to routinely post difficult years,the bond market inked its second year in a row of negative returns,a feat not seen since 1958-59.Ironically,U.S.bonds have never posted three cons

3、ecutive years of negative returns,setting up for what we believe will be an exciting 2023 as interest rates peak and one we have already begun positioning for within our current guidance.“In investing,what is comfortable is rarely profitable.”Robert ArnottA fitting symmetry of a bull market that beg

4、an during the pandemic with a huge liquidity surge now reconciles itself to a bear market grappling with a massive liquidity drain,as many factors coalesce simultaneously to tighten financial conditions.High inflation and the end of pandemic-related transfer payments reduced real disposable income i

5、n 2022;however,real spending growth remained more resilient as consumers unleashed pent-up demand and shifted focus from goods spending to services spending.2023 may actually see this situation reverse as the drivers of inflationoil prices,food prices,wage gains,and productivitygive way and the pace

6、 of inflation drops.We expect a U.S.recession in the first half of 2023,as well as a continued global economic slowdown,as last years hawkish monetary policy and money growth slowdown works with a lag.That should drive down corporate earnings growth and create important inflection points for investo

7、rs over the next 9 to 12 months.From a market perspective,we prefer to step deliberately through this kind of turbulence as the U.S.economy weathers the fastest pace of real rate tightening in modern history.Bear markets are ultimately a function of price and time.We believe both will run their cour

8、se in 2023.While we expect 2023 to be a volatile and challenging year as we make this transition,paradoxically we believe it may create strong opportunities for investors to reposition for growth and back into a more pro-risk stance as the next economic recovery and bull market emerge.This outlook o

9、ffers a road map of specific advice and guidance for the coming year.As I regularly impress on our strategy team,advice is only as good as what can be understood and applied.It is our job to make these words on the following pages have shape,meaning,and impact for you as an investor.We take that rol

10、e extremely seriously and exercise it with the utmost care.On behalf of my Wells Fargo Investment Institute colleagues and all our advisors,I want to thank you for the trust you extend to us as our clients.Darrell L.Cronk,CFA President,Wells Fargo Investment InstituteChief Investment Officer,Wealth&

11、Investment ManagementWhats inside2023 Outlook|3Economic and market forecasts.page 4Global economy.page 6 We expect a recession in early 2023,recovery by midyear,and a rebound that gains strength into year-end.Nevertheless,full-year U.S.economic growth and inflation targets may reflect mostly the rec

12、ession.Dollar strength early in the year should flatten and partially reverse its upward trajectory,as slowing inflation and Federal Reserve(Fed)interest-rate cuts in the second half of 2023 remove a key source of support.Global equities.page 9 We expect earnings to decline in 2023 but see equity ma

13、rket gains as investors anticipate a late-2023 to 2024 recovery.We favor U.S.large-cap and U.S.mid-cap equities over international equities and remain tilted toward quality and defensive sectors.Our positioning will likely shift to more cyclical in 2023 as we anticipate the eventual recovery.Global

14、fixed income.page 13 We expect U.S.Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.We believe increasing exposure in long-term fixed income and extending duration may provide an advantage before considering lower credit e

15、xposure.Global real assets.page 16 We expect commodities to perform well in 2023,especially energy-related commodities and equities and high-quality master limited partnerships(MLPs).We expect real estate investment trusts(REITs)to underperform equity markets but see some value in the Self-storage,R

16、etail,and Data Centers sub-sectors.Global alternative investments*Alternative investments are not appropriate for all investors and are only open to“accredited investors”or“qualified investors”within the meaning of the U.S.securities laws.They are speculative,highly illiquid,and designed for long-te

17、rm investment and not as trading vehicles.page 18 We believe Relative Value and Macro hedge funds can provide solutions for equity and credit market diversification,as well as real yield,for the near future.We anticipate selective opportunities in Private Equity.Top five portfolio ideas for 2023.pag

18、e 20 Please see pages 2527 for important definitions and risk considerations.4|2023 Outlook2023 economic and market forecasts-1.3%U.S.GDP(gross domestic product)growthWe expect an economic recovery after midyear,but the moderate recession that we anticipate to come first is the main driver behind ou

19、r forecast for a contraction for the year as a whole.Average%change from the same period a year ago,unless otherwise notedGlobal Economy Latest2023 targetU.S.GDP Growth3.3%(Period ending Q3)-1.3%U.S.Inflation11 12-month change,as of the date indicated.7.7%(Oct)2.2%(Dec)U.S.Unemployment rate22 3-mont

20、h average as of date indicated.3.6%(Oct)5.2%(Dec)Global GDP Growth33 Global GDP and Inflation are GDP-weighted averages for developed and emerging economies.3.4%(Period ending Q3)0.9%Global Inflation1,37.7%(Q3)4.0%(Q4)Developed-Market GDP Growth3.2%(Period ending Q3)-1.3%Developed-Market Inflation19

21、.2%(Q3)3.0%(Q4)Emerging-Market GDP Growth3.6%(Period ending Q3)2.6%Emerging-Market Inflation16.7%(Q3)4.8%(Q4)Eurozone GDP Growth4.1%(Period ending Q3)-3.4%Eurozone Inflation110.0%(Nov)2.1%(Dec)Sources:Bloomberg and Wells Fargo Investment Institute,as of November 30,2022.The targets for 2023 are base

22、d on forecasts by Wells Fargo Investment Institute as of December 6,2022.GDP=Gross Domestic Product.Forecasts,targets,and estimates are based on certain assumptions and our current views of market and economic conditions,which are subject to change.An index is unmanaged and not available for direct

23、investment.Past performance is no guarantee of future results.Foreign currency exchange rates2022 latest*Latest economic and market data as of November 30,2022.2023 year-end targetDollar/euro exchange rate$1.04$1.01$1.09Yen/dollar exchange rate1381301403.50%3.75%Federal funds rateThis forecast antic

24、ipates multiple policy interest-rate reductions after rates peak above 4.50%early in 2023.Fixed income targets2022 latest*2023 year-end target10-year U.S.Treasury yield3.64%3.50%4.00%30-year U.S.Treasury yield3.76%3.50%4.00%Federal funds rate3.75%4.00%3.50%3.75%Sources:Wells Fargo Investment Institu

25、te and Bloomberg,December 6,2022.Forecasts,targets,and estimates are based on certain assumptions and our current views of market and economic conditions,which are subject to change.Past performance is no guarantee of future results.Please see pages 2527 for important definitions and risk considerat

26、ions.Real assets targets2022 latest*Latest economic and market data as of November 30,2022;latest 2022 earnings-per-share figures reflect consensus estimates.2023 year-end targetWest Texas Intermediate crude(barrel)$80$100$120Brent crude(barrel)$85$105$125Gold(troy ounce)$1,769$1,900$2,000Bloomberg

27、Commodity Index 2522702902023 Outlook|5$100$120West Texas Intermediate crudeAnother year of energy price gains is likely as the economic recovery sparks greater demand while global supply struggles to keep pace.Equity targets2022 latest*2023 year-end targetS&P 500 Index4,0804,3004,500 Earnings per s

28、hare220205Russell Midcap Index2,8602,900-3,100 Earnings per share156145Russell 2000 Index(small cap)1,8861,800-2,000 Earnings per share7970MSCI EAFE Index1,9451,700-1,900 Earnings per share155130MSCI Emerging Markets Index952800-1,000 Earnings per share8370Sources:Wells Fargo Investment Institute an

29、d Bloomberg,December 6,2022.Forecasts,targets,and estimates are based on certain assumptions and our current views of market and economic conditions,which are subject to change.An index is not managed and not available for direct investment.Past performance is no guarantee of future results.4,3004,5

30、00S&P 500 IndexOnce investors begin to anticipate economic and earnings recovery,we expect the S&P 500 Index to gain into year-end.Please see pages 2527 for important definitions and risk considerations.6|2023 OutlookGlobal economyA year of global economic transitionsKey takeawaysOur forecast for a

31、moderaterecession in 2023 is based on aresilient labor market,slowinginflation,and lower interest rates.We believe that a recession andunwinding inflationary shocks ofthe past 18 months will allowinflation to decline to under 3%on a year-over-year basis byyear-end 2023.Much lower inflation and easie

32、rFed policy should allow the U.S.dollar to peak early in the year,and then partially reverse its2022 gains by year-end.A two-chapter outlook for the U.S.and global economiesWe expect the U.S.and global economies to face a moderate recession through the summer in 2023 followed by a second-half recove

33、ry capable of extending into 2024.Our view is that inflations noticeable decline will be the other dominant theme in 2023,shaping the trajectory of economic growth and interest rates.More trade-sensitive,manufacturing-oriented economies abroad are bracing for a steeper economic slowdown from interes

34、t-rate increases and market liquidity pressure potentially more serious than in the U.S.Fuel costs already are more elevated than those in the U.S.Export prospects are being dented by weak economic growth in China,dimming prospects for world trade,and the deflationary effects of a strengthening doll

35、ar in 2022.Even as the dollars exchange value flattens and partially reverses in 2023,its residual strength still should restrain overseas opportunities for investors,as it adds to the local-currency cost of commodities and dollar-denominated debt issuance.What it may mean for investorsProspects for

36、 a more moderateeconomic recession in the U.S.than overseas support ourfavorable view of U.S.overinternational financial markets.The U.S.should avoid some of the challenges contributing in the past to a deep recession and drawn-out recovery.Household and bank finances are in reasonably good shape.Th

37、e U.S.economy also is supported by a more resilient labor market.And were counting on a break in 2023 inflation to take enough pressure off purchasing power and interest rates to moderate the economic downturn.The global recession should end sometime around mid-2023.A deeper or longer contraction se

38、ems unlikely,but we will be watching two main risks.First is the risk of tightening financial conditions tied to,among other things,higher interest rates,the Feds quantitative tightening(the reduction in cash as the Fed shrinks its balance sheet),and reduced money supply growth.Second,any new commod

39、ity shortages could raise raw materials prices,prolong high inflation and monetary policy restrictions,and thereby extend the recession.Main risks to the economic outlookWe expect a moderate recessioninto mid-2023,but a deeper orlonger recession could result inthe unlikely event that inflationstays

40、higher for longer or thatthe Fed overshoots with itsinterest-rate hikes.Riding the return to slower inflationOur conviction is that inflation will decline,leaving its December 2022 to December 2023 rate below 3%.Inflation is susceptible to declines now that a series of shocks contributing to inflati

41、ons“spike”are unwinding:The recession should reduce demand for an array of goods and economicallysensitive services,like travel and entertainment.Goods price inflationstarted responding to a rotation of spending toward services and to decliningfreight costs in 2022.Inflation for“stickier,”less econo

42、mically sensitive prices excludinghousing was back down to a December 2021 low by the end ofSeptember 2022.Housing price declines should continue to gain momentum,whilemortgage rates remain elevated and the weak economy undermineshousehold formations.Please see pages 2527 for important definitions a

43、nd risk considerations.2023 Outlook|7Long-term restraints on inflation are intact and should also contribute to inflations reversal lower.Cost-of-living adjustments still are less common in labor negotiations now than they have been in the past,and globalization still is a force containing costs des

44、pite recent erosion.Financial barriers to entry by new firms are less imposing in todays less capital-intensive,more services-oriented economy.And prices have become more transparent with the growing use of the internet as a shopping vehicle.The chart below shows that long-term inflation expectation

45、s were remarkably contained through inflations rapid rise in 2021 and 2022.These long-term factors should continue this pattern in 2023.Investor,household long-term inflation expectations still well contained Investors 10-year expectations*(left scale)Households 5-to 10-year inflation expectations(r

46、ight scale)PercentMid-November2022201920202021Percent201820222.02.22.42.62.83.03.20.61.01.41.82.22.63.0*As measured by the inflation rate needed to equate the yield on a 10-year Treasury inflation-protected security with the yield on a 10-year conventional security.Sources:University of Michigan;Blo

47、omberg Financial News,LLC;and Wells Fargo Investment Institute,as of November 15,2022.Monthly data,December 2017 to November 2022.Dollars rise may slow,and possibly reverseWe expect the dollar to recover from its reversal in late 2022 and flatten but remain firm into early 2023.Compared with other e

48、conomies,we look for the U.S.economy to enjoy greater resilience.Notably,the larger U.S.economy depends on trade and imported energy less than the rest of the world.This comparative independence has allowed the Fed to raise interest rates faster,further,and more aggressively than other developed mar

49、ket central banks.Comparatively higher U.S.interest rates and the perceived safe haven status of the dollar reinforced the greenbacks global strength in 2022.Please see pages 2527 for important definitions and risk considerations.8|2023 OutlookFed pivot may be the turning pointHowever,over the cours

50、e of 2023,we expect these drivers to change in ways that may lead to a slowing of the dollars ascent,a flattening,and a partial reversal of its upward trajectory.A Fed pivot toward interest-rate cuts,which we expect in the second half of 2023 as inflation slows noticeably,will undercut a major suppo

51、rt for the dollar.Related to this,a peak in U.S.Treasury yields will likely ease downward pressure on the Japanese yen by discouraging further outflows,and a hawkish European Central Bank may find that its rate increases gain more traction in supporting the euro in this context.Steadier dollar to ea

52、se pressure on emerging currencies If the dollar does peak against developed market currencies in 2023,as we expect,with the euro and yen finally finding some support,emerging market currencies may also stabilize as the pressure of a globally strong dollar eases.Ongoing stress within the Chinese eco

53、nomy should allow for outperformance of those currencies more closely linked to the U.S.economy than to China as the former emerges from recession.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|9 Global equitiesStay with quality until broader opportunities emerg

54、eKey takeaways We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins.Valuations should rebound in 2023 to lift equity markets by year-end as early-cycle dynamics begin to take hold.With an economic recession looming,we remain defensively positioned.Ho

55、wever,as investors begin to look past the recession to a recovery,our guidance likely will lean more cyclically.Earnings likely to contractIn the U.S.,we expect corporate revenue to decline as the economy falls into recession.Also,we see operating margins slipping from record levels as sales growth

56、stalls and interest,labor,and input expenses remain elevated.While 2022 earnings were better than expected,2023 earnings are likely to contract early in the year due to the projected economic weakness in the coming quarters.We see earnings rebounding toward the end of 2023 if the U.S.economy begins

57、to grow again as we expect.Our forecasts for the recession to end in mid-2023,inflation to cool,and the Fed to begin easing policy should lead to improving investor sentiment and higher price/earnings(P/E)multiples.Investors should anticipate the late-2023 to 2024 economic and earnings recovery to s

58、end equity prices higher.Similar to prior early cycles(2009 and 2020),equity prices likely will increase much more rapidly than earnings can recover,leading to above-average P/E multiples.However,once earnings catch up to prices,the multiple should normalize at a lower level.The chart below shows hi

59、storical calendar-year contributions to return for the S&P 500 Index compared with our forecasts for 2022 and 2023.What it may mean for investors We were defensively positioned from the first quarter of 2022,but 2023 should bring opportunities for investors to position more for recovery following th

60、e first-half recession.2023 S&P 500 Index total return expected to be driven by P/E expansionS&P 500 Index total return(%)-50-30-20-100204050P/E expansion/contractionEarnings returnDividend return-401030Total return230708095122Sources:Bloomberg and Wells Fargo Investment Instit

61、ute.Yearly data:2007 2023.2022 and 2023 are Wells Fargo Investment Institute estimates.Gray boxes highlight the first year of recoveries in 2009 and 2020 and our forecast in 2023.Forecasts and targets are based on certain assumptions and on our current views of market and economic conditions,which a

62、re subject to change.We continue to favor higher-quality U.S.large-cap and mid-cap equities over small-cap equities and international equities.This defensive positioning likely will benefit investors early in the recession.However,equity markets are forward-looking and should begin pricing in a reco

63、very before the recession ends.Our conviction is that investors will find opportunities to increase equity exposure in 2023,likely leaning into more economically sensitive areas of the market.Please see pages 2527 for important definitions and risk considerations.10|2023 OutlookInternational equity

64、markets face headwinds that ultimately keep us less favorable compared with U.S.equities through 2023.In aggregate,international earnings growth prospects lag those for the U.S.,while sentiment,geopolitical tensions,and only a partial dollar depreciation reinforce our preference for U.S.over interna

65、tional markets.Favored asset classesU.S.Large Cap EquitiesU.S.Mid Cap EquitiesWe see no catalyst for sustained international equity market outperformance in 2023.The dollar may surrender some of its 2022 appreciation but should stay strong enough to maintain a headwind for international returns.Mean

66、while,elevated commodity prices will likely help commodity exporters but undercut earnings among commodity importers.And a difficult European recession should weigh on developed market returns.Favored equity sectorsEnergyHealth CareInformation TechnologyStay balanced and focus on quality sectors We

67、continue to prefer balance,patience,and a tilt toward quality,both across equity sectors and at the sub-industry level.Our favored sectors remain Information Technology(IT),Health Care,and Energy,while we remain unfavorable on the highly cyclical Consumer Discretionary sector and the interest-rate-s

68、ensitive Real Estate sector.*Sub-industry analysis prepared by Wells Fargo Advisors Global Securities Research(GSR).For more detailed information at the sub-industry level,please see“2023 Equity Sector Outlook:Balanced and ready”,December 2022.IT has high-quality attributes,and we remain attracted t

69、o the numerous secular growth drivers that underpin the sector.ITs largest constituents sport particularly strong financial health,while more broadly,many companies within the sector have high margins,low balance-sheet leverage,and solid long-term growth prospects.Within the IT sector,we favor the I

70、T Services,Networking Equipment,Payment Processors,Semiconductor Equipment,and Software sub-industries because we expect relatively resilient corporate tech spending even in an uncertain macroeconomic backdrop and supply chain reshoring.We remain neutral on Semiconductors and PC Hardware due to conc

71、erns on the economic cycle but would note that valuations for these sub-industries and IT more generally have become more reasonable in recent quarters.Our preference for the Health Care sector comes from its mix of defensive and quality characteristics.For instance,we expect the Managed Care sub-in

72、dustry to maintain strong earnings stability while also continuing to benefit from the effects of an aging population.We also favor the Life Sciences and Medical Devices sub-industries,as we expect these areas to continue exhibiting strong and consistent organic growth due to increasing adoption of

73、advanced medical technologies that include biologics,diagnostics,and robotic surgery.We are neutral on large-cap Pharmaceuticals,as we view the fundamentals as balanced generally strong earnings stability,offset by varying exposure at the company level to pandemic-related product lines(such as vacci

74、nes)and a wide spread of pipeline quality.Meanwhile,we remain unfavorable on Generic Pharmaceutical companies,where we continue to believe that fundamentals remain questionable.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|11We favor the Energy sector,as we exp

75、ect secular supply constraints to persist for some time and ultimately see higher prices for the underlying commodities into 2023.Valuations are also attractive in our view,and although capital returns could moderate somewhat relative to 2022,the sectors dividend yield remains well in excess of the

76、S&P 500 Index.Within this sector,we prefer Integrated Oil and Gas companies that have strong capital bases and a positive relationship with commodity price levels.We prefer market-weight allocations to the Consumer Staples and Utilities sectors due to the earnings stability these sectors are likely

77、to achieve during an economic downturn.Within Consumer Staples,we expect Food and Staples Retailing to benefit from aggressive inventory reduction and to gain market share as consumers become increasingly value-conscious.We are neutral to unfavorable on the majority of cyclical sectors but would not

78、e that these sectors provide potential opportunities for investors looking to maintain balance within portfolios.More defensive sub-industries would include Defense Contractors within Industrials,Property and Casualty Insurance within Financials,Industrial Gases within Materials,and Automotive Retai

79、l within Consumer Discretionary.On the other hand,with an eye toward an eventual recovery,we continue to favor Railroads in Industrials,Internet Retail within Consumer Discretionary,and Universal Banks within Financials.Our overall sector positioning likely will shift from a more quality and defensi

80、ve posture to a more broadly cyclical one in 2023 as markets look through the recession to the recovery and rebound.Please see pages 2527 for important definitions and risk considerations.Equity sector and sub-industry preferences12|2023 OutlookSub-industry guidanceSector guidanceSectorFavorableUnfa

81、vorabler guidancetoSecFavorableEnergyIntegrated Oil;Midstream C-CorpsRefinersHealth CareLife Sciences Tools&Services;Managed Care;Medical Devices&EquipmentGeneric PharmaceuticalsInformation TechnologyIT Services;Networking Equipment;Payment Processors;Semiconductor Equipment;SoftwareStorage&Peripher

82、alsNeutralCommunication ServicesIntegrated Telecom Services;Interactive Home Entertainment;Interactive Media&ServicesAlternative Carriers;PublishingConsumer StaplesBeverages;Food&Staples Retailing;Household ProductsTobacco ProductsFinancialsInsurance Brokers;Property&Casualty Insurance;Universal Ban

83、ksBusiness Development Companies;Mortgage REITsIndustrialsDefense Contractors;Multi-Industrials;RailroadsAirlines;Commercial AerospaceMaterialsIndustrial GasesUtilitiesElectric Utilities;Independent Power&Renewable Electricity Producers;Multi Utilities;Water UtilitiesUnfavorableConsumer Discretionar

84、yAutomotive Retail;General Merchandise Stores;Internet&Direct Marketing RetailAutomobile Manufacturers;Homebuilding;Casinos&Gaming;RestaurantsReal EstateSelf-storage REITs;Retail REITs;Data Centers REITsApartment REITs;Single Family Home REITs;Manufactured Homes REITs;Office REITs,Health Care REITsF

85、avored sub-subsectors by Wells Fargo Advisors Global Securities Research group.Favored sectors by Wells Fargo Investment Institute.As of December 6,2022.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|13Global fixed incomeSharp U-turn aheadWe believe the Fed will

86、 pivot away from raising borrowing costs in 2023 after signs that inflation is waning and a recession has taken hold.The Fed will play a key role as it begins to cut policy rates in the second half of the year to aid the economic recovery.Although the Fed plans to continue with balance-sheet reducti

87、on,potentially tight credit conditions in the broader financial system could cause the Fed to inject cash in markets where buyers or sellers suddenly disappear.Key takeaways We believe the Fed will pivot away from monetary policy tightening in 2023 after signs of waning inflation pressures begin to

88、emerge and the recession takes hold.We believe that a 2023 recession may result in even stronger demand for municipal bonds because they tend to be perceived as a haven for their lower volatility during times of turbulence.Extending fixed-income maturitiesLong-term Treasury bonds provided relatively

89、 more stable total returns than high-yield corporate bonds in the 12-month period following the start of the past three U.S.recessions.8085909555678910 11 12 13 14 15 16 17 18 19 20 21 22 23 24Total return index value=100as of start of recessionMonths after start of recession20

90、01 U.S.recessionLong-term Treasury BondsHigh-yield corporate bonds809000 11 12 13 14 15 16 17 18 19 20 21 22 23 24Total return index value=100as of start of recessionMonths after start of recession2007 U.S.recessionLong-term Treasury BondsHigh-yield corporate bonds6070808590951

91、0008910 11 12 13 14 15 16 17 18 19 20 21 22 23 24Total return index value=100as of start of recessionMonths after start of recession2020 U.S.recessionLong-term Treasury BondsHigh-yield corporate bondsSources:Bloomberg and Wells Fargo Investment Institute,as of October 14,2022.M

92、onthly data,March 2001 to February 2003,December 2007 to November 2009,February 2020 to January 2022.Representative indexes include Bloomberg U.S.Long Treasury Total Return Bond Index and Bloomberg U.S.High-Yield Corporate Bond Total Return Index.An index is unmanaged and not available for direct in

93、vestment.Past performance is no guarantee of future results.What it may mean for investors Long-term yields tend to peak before the Fed finishes raising rates.We favor remaining nimble in bond portfolio allocations with a barbell strategy that lengthens maturities but also takes advantage of ultra-s

94、hort-term yields.An eventual economic recovery in the latter half of the year should begin to support credit-oriented asset classes and sectors.Please see pages 2527 for important definitions and risk considerations.14|2023 OutlookFavored sectorsLong-Term Fixed IncomeShort-Term Fixed IncomeMunicipal

95、 SecuritiesWe expect U.S.Treasury yields to decline in 2023 during the economic recession and as investors anticipate eventual rate cuts from the Fed.Ultimately,we expect opportunities for many fixed-income asset classes to begin to recover from the unprecedented1 losses of 2022.We believe that incr

96、easing exposure in long-term fixed income will provide an advantage before opportunities appear in lower credit exposure(see chart on previous page).We expect long-term yields will begin to decline well before we reach the peak in high-yield credit spreads a pattern that repeated in the past three r

97、ecessions.1.Double-digit decline(-13.1%)in the Bloomberg U.S.Aggregate Total Return Bond Index year to date as of November 30,2022 the lowest figure since index inception in 1976 Investors focus in 2023 should remain on the Fed,whose interest-rate hikes typically overshoot and tip the economy into a

98、 recession.We already see this pattern repeating,and our targets anticipate lower short-and long-term interest rates by year-end 2023.Problematic backdrop for global bondsSustained inflation pressure overseas should continue to push policy rates and long-term yields higher in developed markets outsi

99、de the U.S.Nevertheless,higher U.S.rates are likely to keep U.S.markets more attractive and support the dollars strength,at least until the U.S.recession pushes all U.S.interest rates and the dollar lower later in 2023.We are keeping our preference for U.S.fixed income over developed ex-U.S.markets.

100、Two crosscurrents leave our outlook neutral on emerging market sovereign debt denominated in dollars,at least at the start of the year.The negatives include recessions among the developed economies and slow growth in global trade and the Chinese economy.Higher yields in these markets and well-contai

101、ned sovereign credit spreads in the larger emerging economies offset the negatives enough for us to prefer holding long-term target allocations,at least until we expect global economic improvement,in the second half of 2023.Corporate bonds may experience a correction We believe investment-grade corp

102、orate issuers will enter 2023 from a position of strength with interest coverage ratios at all-time highs and debt maturities pushed out into the future.Downgrades on the scale of past recessions are unlikely for investment-grade issuers.However,longer-term credit deterioration could occur for issue

103、rs with severe earnings drawdowns,credit-negative capital allocation priorities,and longer-term destruction of business strength.Credit spreads(risk premium over Treasuries)for investment-grade and high-yield corporate bonds are currently hovering near long-term averages,but we expect that increased

104、 volatility and a decline in corporate profits in the upcoming quarters will diminish the appetite for credit risk and cause spreads to widen.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|15The high-yield market should remain bifurcated with strong credit metri

105、cs,especially in double B(BB)ratings but with signs of weakness developing for those securities rated single B(B)and below.The increase in short-term rates that has already taken place will likely stress the lower-quality issuers moving forward as debt service costs increase,leaving less capital ava

106、ilable for investment or debt reduction.Currently,we expect high-yield defaults to climb slightly in 2023 but only moving closer toward long-term averages.We prefer higher-quality issuers with stronger balance sheets and cash flows and with relatively better liquidity.Consider municipal bondsWe beli

107、eve municipal bond issuers backed by federal tax-exempt status,strengthened reserves,strong fiscal governance,conservative debt structures,and budget-balancing powers are generally well positioned to withstand current economic pressures heading into 2023.*Sub-sector guidance by Wells Fargo Advisors

108、Global Securities Research group.Sector guidance by Wells Fargo Investment Institute.During the past three recessions,municipal bonds have,on average,declined less and recovered the value lost at a faster pace than investment-grade corporate bonds.Municipal credits also continue to carry an average

109、rating that is significantly higher than corporates and with a much lower default rate.We believe a recession in 2023 may result in even stronger demand for municipal bonds,as investors perceive them as a haven for their lower volatility during times of turbulence.We remain favorable on municipals,a

110、nd for investors in higher effective tax brackets,municipal securities remain relevant and an important part of fixed-income positioning.Fixed-income sector and sub-sector preferencesSub-sectorsSectorsFavorableUnfavorableInvestment-Grade Corporate bonds(neutral)Utilities,Health Care,Oil&GasIndustria

111、ls,Consumer DiscretionaryMunicipal bonds(favorable)Essential Service and Tax Supported;Transportation(for more aggressive investors)Higher Education (niche,private institutions)and Health Care (smaller providers)Sub-sector guidance by Wells Fargo Advisors Global Securities Research group.Sector guid

112、ance by Wells Fargo Investment Institute.As of December 6,2022.Please see pages 2527 for important definitions and risk considerations.16|2023 Outlook Global real assetsCommodity future still looks brightKey takeawaysWe are favorable on Commoditiesin 2023,as the bull super-cycle is still young.We ar

113、e unfavorable on REITsoverall due to rising interest ratesand an impending recession.Favorable on Commodities,particularly EnergyCommodities have had a strong two-year run,and we expect more gains in 2023 as many commodities remain structurally undersupplied.We enter 2023 favorable on Commodities,an

114、d within the commodity sectors,we like Energy the best.We also continue to favor large,well-capitalized,broadly diversified Midstream Energy companies both Master Limited Partnerships(MLPs)and C-Corporations.We remain unfavorable on Real Estate Investment Trusts(REITs)due to rising interest rates an

115、d an impending recession.What it may mean for investorsWe favor overweightingCommodities in portfolios whileunderweighting REITs.Structural undersupply drives bull super-cycleCommodity prices tend to move together over multiyear periods called super-cycles(see chart on next page).We believe a new bu

116、ll super-cycle began in March 2020(chart,solid orange line on following page).Bull super-cycles appear as strong commodity price performance,driven primarily by supply limitations.Lack of supply helped drive positive commodity returns in 2021 and 2022,and we suspect it will again in 2023.That said,c

117、ommodity price gains may be back-end loaded in 2023,as we anticipate a recession in the first half.Once recession fears cool in the second half and demand picks up,we are anticipating that commodity prices will begin to rise.Oil on track for more gainsOil prices are likely on track for another posit

118、ive year,driven by production challenges and strategic opportunities in large oil-producing countries.The U.S.,as an example,has slowed its production growth while U.S.policy preferences have shifted toward renewable energy sources.Sensing this shift in U.S.policies,the Organization of the Petroleum

119、 Exporting Countries(OPEC+)has made key strategic moves to minimize supplies while maximizing price.Limited global production growth will likely keep prices moving higher over the next few years.Gold under pressureWhile the commodity bull super-cycle has us positive on Commodities generally,we are n

120、eutral on the Precious Metals sector,which includes gold.Gold has positives,but its negatives have been directing prices for some time now.The dollars 2022 ascent to a 20-year high was golds most potent negative,but the 2023 flattening and then reversal lower in the dollars value that we expect shou

121、ld relieve some pressure on gold.Other positives that may help in 2023 are a favorable supply/demand balance and oversold price conditions(cheap versus other commodities and negative investor sentiment).Our 2023 target range of$1,900 to$2,000 reflects in-line commodity performance plus a bit extra,w

122、hile gold appears oversold.We caution investors,though,not to be too aggressive with gold until it shows better price action.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|17REITs not keeping paceWith spiking interest rates and a likely recession on the horizon,

123、REITs should continue to lag.Softness in REIT values is not necessarily unexpected,as real estate can be one of the earliest sectors hit when recession is on the table.As long as interest rates continue to rise,we will likely remain unfavorable on REITs(versus other S&P 500 sectors).Even if interest

124、 rates level off,we may remain unfavorable,with yields on many Treasury bills and other Treasuries competitive with the average REIT dividend yield.We enter 2023 with an unfavorable rating on REITs overall;a favorable rating on Self-storage REITs,Retail REITs,and Data Centers REITs;and an unfavorabl

125、e rating on Residential sub-industry REITs(Apartment,Single Family Home and Manufactured Homes),Office REITs,and Health Care REITs.Midstream Energy(MLPs and C-Corporations)Higher oil prices and comparatively high dividend yields have helped many Midstream Energy companies outperform in recent years,

126、and were expecting more positive momentum in 2023.We expect Midstream companies to perform well in 2023,especially large,well-capitalized,broadly diversified ones.We prefer Midstream C-Corporations over MLPs,as the C-Corporation structure is more likely to attract outside capital.Favored sectors Com

127、modities Self-storage REITs Retail REITs Data Centers REITsModern commodity bull super-cyclesCommodity prices tend to move together over multiyear periods called super-cycles.We believe a new bull super-cycle began in March 2020(chart,solid orange line).Bull super-cycles are marked by strong commodi

128、ty price performance,driven primarily by lack of supply.Indexed value202003605407209001,0801,2601,4401,6201,8001,9802,1602,3402,5202,7002,8803,0603,240500300350400Calendar days since start of bull super-cycleSources:Bloomberg,Wells Fargo Investment Institute as of November 14,2

129、022.Daily data.Indexed to 100 as of the start of the bull super-cycle.Performance measured from October 4,1971-No vember 20,1980,July 13,1999-July 2,2008,and March 18,2020-November 14,2022.Commodity performance measured by the Bloomberg Commodity Total Return Index and Refinitiv Equal Weight Commodi

130、ty Index.An index is unmanaged and not available for direct investment.Past performance is no guarantee of future results.Please see pages 2527 for important definitions and risk considerations.18|2023 Outlook Global alternative investmentsOpportunities in alternative investmentsKey takeaways While

131、equity and bond market volatility remain elevated,we favor strategies that offer low correlation to these traditional markets.Credit markets have begun toshow signs of weakness despiterelatively low default and distressratios.As conditions continue todeteriorate,we will look to shiftour guidance on

132、distressedinvesting within both Event Drivenand Private Debt strategies.Given the evolving economic downturn,elevated inflation,monetary tightening,and the downward trends in stocks and bonds,we prefer using alternative strategies to further diversify risk,which can be accomplished through several h

133、edge fund and private capital strategies.Our cyclical guidance for the Global Macro and Relative Value strategies remains favorable.We believe both strategies are likely to benefit from a shifting collection of persistent market dislocations and longer-term secular trends.As shown in the chart below

134、,both Macro and Relative Value generated higher returns than equities and real assets during past recessions since 1990.By contrast,Equity Hedge and Event Driven outperformed after these recessions.We expect Global Macro to continue to benefit from several drivers,including inflation,a still-strong

135、dollar early in 2023,the commodity super-cycle,higher interest rates,and heightened market volatility.What it may mean for investorsLate cycle is an opportune timeto allocate to alternativeinvestment strategies thathave low correlation to equitiesand fixed income in our view.Consider allocations to

136、Macroand Relative Value,but beprepared to add Event Drivenand Equity Hedge as weapproach recessionary conditionsand subsequent recovery.While Macro and Relative Value performed well during recessions since 1990,Equity Hedge and Event Driven strategies led 12 months afterAverage return(%)-15-10-50510

137、1520256%0.08%-2%-4%5%-12%-13%14%13%18%19%7%11%17%During recessions12 months post recessionsMacroRelative ValueEquity HedgeEvent DrivenFixed IncomeEquitiesReal AssetsSources:Bloomberg and Wells Fargo Investment Institute.Data as of October 2022.Recent recessions include the National Bureau of Economi

138、c Researchs defined recessions since 1990.The Macro strategy is represented by the HFRI Macro Total Return Index.The Relative Value strategy is represented by the HFRI Relative Value Total Return Index.The Equity Hedge strategy is represented by the HFRI Equity Hedge Total Return Index.The Event Dri

139、ven strategy is represented by the HFRI Event-Driven Total Return Index.Fixed Income is represented by the Bloomberg U.S.Aggregate Total Return Index.Equities are represented by the MSCI ACWI Gross Total Return USD Index.Real Assets are represented by the Bloomberg Commodity Total Return Index.An in

140、dex is unmanaged and not available for direct investment.Past performance is no guarantee of future results.See index definitions at end of report.Alternative investments are not appropriate for all investors and are only open to“accredited investors”or“qualified investors”within the meaning of the

141、U.S.securities laws.They are speculative,highly illiquid,and designed for long-term investment and not as trading vehicles.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|19Staying selective through economic transitionsThe litany of headwinds facing the current g

142、lobal economy includes elevated inflation pressures,a retrenching consumer,restrictive monetary policy,and rising debt levels.Given this backdrop,we continue to prefer Global Macro and Relative Value strategies,which have historically tended to exhibit lower correlations to traditional stock and bon

143、d markets.Favored hedge fund strategies and sub-strategies Relative Value:Arbitrage Relative Value:Long/Short Credit Macro:Systematic Macro:Discretionary Event Driven:Distressed CreditHedge Fund strategies,such as Global Macro and Relative Value,offer diversification benefits through lower correlati

144、ons to traditional stocks and bonds.Global Macro strategies often perform well when there are persistent trends,such rising(or falling)prices in commodities,currencies,equity indexes,or interest rates.Relative Value strategies can perform well regardless of market direction,as the ability to hedge o

145、ut market risks can prove valuable during recessionary environments.Within Relative Value,we believe the environment should set up well for Long/Short Credit strategies,as the ability to isolate price discrepancies or generate alpha(excess return over the benchmark)from both the long and short portf

146、olios becomes more prevalent as intra-security correlations decline.Anticipating recession,we hold a favorable view of Distressed Credit.While the distressed credits are scarce today,the opportunity set should expand significantly,as over-levered businesses are impacted by increasing debt service le

147、vels and slowing demand from a stressed consumer.Lastly,for investors with longer-term investment horizons,we maintain our neutral view of private capital strategies,including Private Equity,Private Debt,and Private Real Estate.For Private Equity,we continue to see opportunities within Small-and Mid

148、-Cap Buyout funds,given the more significant valuation dislocations.While we have seen acute weakness in technology companies recently,which has hurt exit valuations for Growth and Venture Capital funds,we view this as a good entry point for these strategies,knowing they have multiple years to deplo

149、y capital at more attractive prices.In Private Debt and Private Real Estate,the impact of higher interest rates may take several months to be fully reflected in the form of credit market stress and lower real estate valuations.We are currently waiting for more attractive entry points as the opportun

150、ity set becomes more attractive.Given the long-term nature of private investments,we prefer qualified investors methodically allocate across core Private Capital strategies annually to ensure diversification.Favored Private Capital strategies and sub-strategies Private Equity:Small-and Mid-Cap Buyou

151、t Private Equity:Growth Equity and Venture CapitalPlease see pages 2527 for important definitions and risk considerations.20|2023 Outlook Our top five portfolio ideas for 2023 1 Reconsider portfolio allocationsAs investors prepare for 2023,we believe now is an opportune time to reassess the balance

152、between income and growth assets.Income-seeking investors during the past several years may have relied on a mix of dividend payouts,income from real estate and other assets,and coupons from fixed-income assets to support income needs.Now with a shift in the interest-rate environment,bonds are curre

153、ntly offering a more attractive source of income.For example,the 10-year U.S.Treasury bond is yielding 4.0%compared with a 1.8%dividend from the S&P 500 Index.As the chart below shows,investors now have potential for more attractive yields from fixed-income asset classes than from the equity markets

154、.For more growth-oriented investors,equities should continue to provide more opportunities for capital appreciation than fixed income.However,we expect volatility to remain elevated in 2023,particularly in the first half.A volatile period may offer opportunities for investors with additional cash on

155、 the sidelines to gradually add to their equity positions to prepare for a turnaround in the second half of 2023,when we expect the economy to start improving,inflation to moderate,and Fed tightening to ease.Fixed-income yields are exceeding dividends from equitiesU.S.large-cap equityDM ex-U.S.fixed

156、 incomeDM ex-U.S.equityEM equity10-year TreasuryInvestment-grade corporateEM fixed incomeHigh yield0246810Yield(%)Yield as of 11/15/2022Sources:Bloomberg,Morgan Stanley Capital International(MSCI),and Wells Fargo Investment Institute,as of November 15,2022.DM=developed market.EM=emerging market.For

157、illustrative purposes only.U.S.large-cap equity:S&P 500 Index,DM ex-U.S.fixed income:J.P.Morgan GBI Global Ex U.S.Index,DM ex-U.S.equity:MSCI EAFE Index,EM equity:MSCI Emerging Markets Index,EM fixed income:J.P.Morgan EMBI Global Index,High yield:Bloomberg U.S.Corporate High Yield Bond Index and Inv

158、estment-grade corporate:Bloomberg U.S.Corporate Bond Index.An index is unmanaged and not available for direct investment.Yields represent past performance and fluctuate with market conditions.Current yields may be higher or lower than those quoted.Past performance is no guarantee of future results.S

159、ee index definitions at end of report.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|21 2 Position equities for a moderate recession and a second-half recovery Heading into 2023,we prefer an underweight to global stocks as the economy continues to slow,yet we do

160、 see opportunities to add to equity positions on the horizon.Based on our view of a recession in early 2023,we advocate remaining defensively positioned in equities,favoring high-quality U.S.large-cap and mid-cap equities over small-cap and international equities and,in U.S.markets,the Information T

161、echnology,Health Care,and Energy sectors.Over the first two quarters of 2023,investors should have more clarity regarding a credible pivot from the Fed,potentially signaling an opportunity for investors to add risk to their portfolios.Once the economy starts to mend,a recovery later in 2023 and into

162、 2024 should send stock prices and price-to-earnings multiples higher even as earnings contract.In this scenario,we may prefer shifting to an overweight position in equities,including higher allocations to U.S.small-caps stocks.The sharp rise in the U.S.dollar should ease only partially in 2023,prov

163、iding little tailwind for international stocks.3 Lock in higher-yielding bondsWith many interest rates above pre-2008 levels but likely approaching a peak,fixed income appears attractive again(see chart on following page).Short-term fixed income is attractive today,with 12-month Treasury yields incr

164、easing from 0.1%a year ago to over 4.0%.If the Fed cuts rates next year as we expect,short-term rates should decline.We believe long-term yields are nearing peak levels and represent good value,so we prefer to add to longer-term bonds.Once yields peak and inflation eases,long-term bonds should becom

165、e more attractive versus shorter-term bonds.We also suggest patience with lower-quality bonds.High-yield bonds currently offer attractive long-term value,but we remain unfavorable on non-investment-grade debt and are waiting for spreads to widen further before considering an upgrade to the sector.At

166、 this stage in the cycle,we prefer that investors increase duration(a measure of a bonds interest rate sensitivity)before considering lower-quality debt.Please see pages 2527 for important definitions and risk considerations.22|2023 Outlook Many yields have soared to pre-financial crisis levelsYield

167、 to worst(%)Yield as of 11/15/2021Yield as of 12/31/2006Yield as of 11/15/2022024681012DM ex-U.S.fixed incomeCash10-year municipal10-year TreasuryInvestment-gradecorporateHigh-yieldmunicipalEM fixed incomeHigh yieldSources:Bloomberg and Wells Fargo Investment Institute,as of November 15,2022.DM=deve

168、loped market.EM=emerging market.For illustrative purposes only.Emerging Market:J.P.Morgan EMBI Global Index,High yield:Bloomberg U.S.Corporate High Yield Bond Index,High yield municipal:Bloomberg U.S.Municipal High Yield Index,Investment-grade corporate:Bloomberg U.S.Corporate Bond Index,Developed M

169、arket ex-U.S.:J.P.Morgan GBI Global Ex U.S.Index,and Cash:Bloomberg U.S.Treasury Bills(13M)Index.An index is unmanaged and not available for direct investment.Yields represent past performance and fluctuate with market conditions.Current yields may be higher or lower than those quoted.Past performan

170、ce is no guarantee of future results.See index definitions at end of report.4 Resist the urge to time the marketsMarket timing involves moving all or a significant portion of a portfolio into or out of asset classes based on near-term market expectations.Unfortunately,such a strategy is nearly impos

171、sible to accomplish successfully.Our research has found that the stock markets best and worst days often follow each other closely and occur during periods of high volatility often during a bear market making it all the more difficult to time.*Wells Fargo Investment Institute,The perils of trying to

172、 time volatile markets,September 14,2022.Instead of timing the markets with large allocation changes,we prefer more modest tactical adjustments for short-term investors.Our guidance combines a quality approach in equities,a barbell between short-and long-term fixed-income assets,low-correlated alter

173、native strategies,and commodities for the longer supply-demand rebalancing in those markets.Once we anticipate recovery and lower interest rates,we expect to shift gears to more cyclical opportunities.For their part,investors with a long time horizon may want to consider following our guidance in a

174、disciplined,patient,and incremental way.The fixed-income barbell and our preference for commodities and higher-quality U.S.equity sectors should offer some attractive long-term entry points while markets remain volatile in the coming months.The same patient and disciplined approach should apply late

175、r in the year,but over the potentially broader opportunity set that typically accompanies an economic recovery.Please see pages 2527 for important definitions and risk considerations.2023 Outlook|23 5 Manage volatility in uncertain markets Market volatility was elevated in 2022,reflecting investor u

176、ncertainty in an environment where stocks and bonds have moved in the same direction an unusual market trend.The traditional portfolio with 60%in equities and 40%in fixed income(60/40 portfolio)did not provide its typical downside mitigation amidst a backdrop of higher inflation,rising interest rate

177、s,and expectations of a global recession.However,a portfolio with broader diversification may have benefited from allocations to commodities and alternative investments.Over the past year,as shown in the table below,a portfolio that held allocations to commodities and alternative investments experie

178、nced smaller losses and lower risk compared with a portfolio with 60%global equities and 40%global bonds.Over a 10-year period,annualized returns were almost 1%higher for the diversified portfolio while keeping portfolio risk at a lower level than a 60/40 portfolio,demonstrating the benefit of diver

179、sification.With elevated risk of recession and volatility in the first half of 2023,a diversified portfolio that includes commodities and alternative investments could help investors manage near-term risks by enhancing risk-adjusted returns and smoothing out performance over time.Allocation12-month

180、return(%)12-month standard deviation(%)10-year annualized return(%)10-year annualized standard deviation(%)Moderate growth and income illiquid allocation-11.4112.196.157.9260%global equities/40%global bonds blend-19.8614.464.969.66Sources:2022 Morningstar Direct,all rights reserved,*The information

181、contained herein:(1)is proprietary to Morningstar and/or its content providers;(2)may not be copied or distributed;and(3)is not warranted to be accurate,complete,or timely.Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information

182、.and Wells Fargo Investment Institute,as of October 31,2022.Allocations use Private Equity and Private Debt until June 30,2022,and Private Real Estate until September 30,2022.Private Equity is rolled into U.S.small-cap equity as of July 1,2022.Private Debt is rolled into high-yield fixed income as o

183、f July 1,2022.Private Real Estate is rolled into public real estate as of October 1,2022.Performance results for moderate growth and income and the 60/40 blend are for illustrative purposes only and are calculated using blending index returns.Moderate growth and income allocation is dynamic and chan

184、ges as needed with adjustments to the strategic allocations.Index returns do not represent investment performance or the results of actual trading.Index returns reflect general market results,assume the reinvestment of dividends and other distributions,and do not reflect deduction for fees,expenses,

185、or taxes applicable to an actual investment.An index is unmanaged and not available for direct investment.Past performance is no guarantee of future results.Standard deviation is a measure of the volatility of returns.The higher the standard deviation,the greater volatility has been.See pages 2527 f

186、or composition of the allocations,risks,and definitions of indexes.Please see pages 2527 for important definitions and risk considerations.24|2023 OutlookPlease see pages 2527 for important definitions and risk considerations.ContributorsDarrell L.Cronk,CFA President,Wells Fargo Investment Institute

187、Chief Investment Officer,Wealth&Investment ManagementGlobal Investment Strategy Luis Alvarado Investment Strategy Analyst Mary AndersonInvestment Strategy AnalystPaul Christopher,CFAHead of Global Investment StrategyChris Haverland,CFAGlobal Equity StrategistJohn LaforgeHead of Real Asset StrategyMa

188、rk Litzerman,CFAHead of Global Portfolio ManagementChao Ma,PhD,CFA,FRMGlobal Portfolio and Investment StrategistMason MendezInvestment Strategy AnalystAustin Pickle,CFAInvestment Strategy AnalystBrian Rehling,CFAHead of Global Fixed Income StrategySameer Samana,CFASenior Global Market StrategistGary

189、 SchlossbergGlobal StrategistMark Steffen,CFA,CAIAGlobal Alternative Investment StrategistJennifer TimmermanInvestment Strategy AnalystPeter Wilson Global Fixed Income StrategistScott WrenSenior Global Market Strategist Global Asset Allocation StrategyDouglas BeathGlobal Investment StrategistJeremy

190、FolsomWealth and Investment Management Program AnalystTracie McMillion,CFAHead of Global Asset Allocation StrategyMichael Taylor,CFAInvestment Strategy AnalystMichelle Wan,CFAInvestment Strategy AnalystVeronica WillisInvestment Strategy AnalystWells Fargo Advisors Global Securities ResearchDorian Ja

191、misonMunicipal AnalystEric M.Jasso,CFATaxable Fixed Income Analyst Lawrence Pfeffer,CFAEquity Sector Analyst,Industrials/Materials Michael WhiteTaxable Fixed Income Analyst2023 Outlook|25Please see pages 2527 for important definitions and risk considerations.ResourcesWells Fargo Investment Institute

192、For timely market commentary and investor guidance,go to our website.| Asset Group)Portfolio Moderate Growth&Income:Moderate Growth&Income is composed of:2%Bloomberg U.S.Treasury Bill(13 Month)Index,21%Bloomberg U.S.Aggregate Bond Index,4%Bloomberg U.S.Corporate High Yield Bond Index,4%JPM EMBI Glob

193、al Index,18%S&P 500 Index,8%Russell Midcap Index,3%Russell 2000 Index,6%MSCI EAFE Index,6%MSCI Emerging Markets Index,6%NCREIF Property Index,2%Bloomberg Commodity Index,10%HFRI Fund Weighted Composite Index,7%Cambridge Associates U.S.Private Equity Index,3%Burgiss Private Debt Index.U.S.Investment

194、Grade Fixed Income encompasses the allocations to Short Term,Intermediate Term,and Long Term.Bloomberg U.S.Corporate Bond Index:The Bloomberg US Corporate Bond Index measures the investment grade,fixed-rate,taxable corporate bond market.It includes USD denominated securities publicly issued by US an

195、d non-US industrial,utility and financial issuers.Bloomberg U.S.High-Yield Corporate Bond Total Return Index:The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated,high yield,fixed-rate corporate bond market.Securities are classified as high yield if the middle rating of Moody

196、s,Fitch and S&P is Ba1/BB+/BB+or below.Bonds from issuers with an emerging markets country of risk,based on Bloomberg EM country definition,are excluded Bloomberg U.S.Long Treasury Total Return Bond Index:The Bloomberg US Treasury:Long Index measures US dollar-denominated,fixed-rate,nominal debt iss

197、ued by the US Treasury with 10 years or more to maturity.Burgiss Group,LLC(Burgiss)Private Debt Index is a pooled quarterly time weighted rate of return series based on data compiled by the Burgiss Group,LLC(Burgiss)from over 800 private debt funds(generalist,senior,mezzanine,and distressed debt),in

198、cluding fully liquidated partnerships,formed after 1986.The return series is net of fees,expenses,and carried interest.The benchmark is issued on a quarterly basis,approximately 80 calendar days after quarter end.Cambridge Associates LLC U.S.Private Equity Index uses a horizon calculation based on d

199、ata compiled from more than 1,400 institutional-quality buyout,growth equity,private equity energy,and subordinated capital funds formed between 1986 and 2021.The funds included in the index report their performance voluntarily and therefore the index may reflect a bias towards funds with records of

200、 success.Funds report unaudited quarterly data to Cambridge Associates when calculating the index.The index is not transparent and cannot be independently verified because Cambridge Associates does not identify the funds included in the index.Because Cambridge Associates recalculates the index each

201、time a new fund is added,the historical performance of the index is not fixed,cant be replicated and will differ over time from the day presented.The returns shown are net of fees,expenses and carried interest.Index returns do not represent fund performance.Commodities:Bloomberg Commodity Index is c

202、omprised of 23 exchange-traded futures on physical commodities weighted to account for economic significance and market liquidity.Commodity Composite measures a basket of commodity prices as well as inflation.It blends the historical commodity index introduced by George F.Warren&Frank A.Pearson,form

203、er academics at Cornell,collected and published commodity price data in their book,Prices,and the producer price index for commodities(PPI-Commodities),and the National Bureau of Economic Research(NBER)Index of Wholesale Prices of 15 Commodities,the Reuters Continuous Commodity Index,and the Bloombe

204、rg Commodity Index Total Return.The index components and weightings,from Warren and Pearsons Prices,change over time but the 11 commodity gr oups used from 1786-1932 ar e:Farm Products,Foods,Hides and Leather products,Textile Products,Fuel and Lighting,Metals and Metal Products,Building Materials,Ch

205、emicals and drugs,Spirits(stopped tracking 1890),House furnishing Goods,and Miscellaneous.The PPI-Commodities is compiled by the Bureau of Labor Statistics and shows the average price change from the previous month for commodities such as energy,coal,crude oil and the steel scrap.The NBER Index of W

206、holesale Prices of 15 Commodities is a measure of price movements of 15 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions.The Reuters Continuous Commodity Index comprises 17 commodity futures that are continuously rebalanc

207、ed:cocoa,coffee,copper,corn,cotton,crude oil,gold,heating oil,live cattle,Live hogs,natural gas,orange juice,platinum,silver,soybeans,sugar no.11,and wheat.Consumer Price Index(CPI)produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and service

208、s.Developed Markets Ex-U.S.Equities:MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure equity market performance across 21 developed market countries excluding the U.S.and Canada.Developed Market Ex-U.S.Fixed Income:JP Morgan Global Ex United States Inde

209、x(JPM GBI Global Ex-US)is a total return,market capitalization weighted index,rebalanced monthly,consisting of the following countries:Australia,Germany,Spain,Belgium,Italy,Sweden,Canada,Japan,United Kingdom,Denmark,Netherlands,and France.Emerging Market Equities:MSCI Emerging Markets Index is a fre

210、e float-adjusted market capitalization index designed to measure equity market performance of emerging markets.The index consists of 23 emerging market countries.Note:MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data c

211、ontained herein.The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.This report is not approved,reviewed,or produced by MSCI.Emerging Market Fixed Income:JPM EMBI Global Index is a U.S.dollar-denominated,investible,market cap-we

212、ighted index representing a broad universe of emerging market sovereign and quasi-sovereign debt.While products in the asset class have become more diverse,focusing on both local currency and corporate issuance,there is currently no widely accepted aggregate index reflecting the broader opportunity

213、set available,although the asset class is evolving.Global Hedge Funds:HFRI Fund Weighted Index is a global,equal-weighted index of over 2000 single-manager funds that report to HFR Database.Constituent funds report monthly net-of-all-fees performance in U.S.dollars and have a minimum of$50 Million u

214、nder management or a 12-month track record of active performance.26|2023 OutlookHFRI Equity Hedge Total Return Index:Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities.A wide variety of investment processes can be employed to arrive at

215、 an investment decision,including both quantitative and fundamental techniques;strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure,leverage employed,holding period,concentrations of market capitalizations and valuatio

216、n ranges of typical portfolios.EH managers would typically maintain at least 50%exposure to,and may in some cases be entirely invested in,equities,both long and short.HFRI Event-Driven Total Return Index:Investment Managers who maintain positions in companies currently or prospectively involved in c

217、orporate transactions of a wide variety including but not limited to mergers,restructurings,financial distress,tender offers,shareholder buybacks,debt exchanges,security issuance or other capital structure adjustments.Security types can range from most senior in the capital structure to most junior

218、or subordinated,and frequently involve additional derivative securities.Event Driven exposure includes a combination of sensitivities to equity markets,credit markets and idiosyncratic,company specific developments.Investment theses are typically predicated on fundamental characteristics(as opposed

219、to quantitative),with the realization of the thesis predicated on a specific development exogenous to the existing capital structure.HFRI Macro Total Return Index:Investment Managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying econ

220、omic variables and the impact these have on equity,fixed income,hard currency and commodity markets.Managers employ a variety of techniques,both discretionary and systematic analysis,combinations of top down and bottom up theses,quantitative and fundamental approaches and long and short term holding

221、 periods.Although some strategies employ RV techniques,Macro strategies are distinct from RV strategies in that the primary investment thesis is predicated on predicted or future movements in the underlying instruments,rather than realization of a valuation discrepancy between securities.In a simila

222、r way,while both Macro and equity hedge managers may hold equity securities,the overriding investment thesis is predicated on the impact movements in underlying macroeconomic variables may have on security prices,as opposes to EH,in which the fundamental characteristics on the company are the most s

223、ignificant are integral to investment thesis.HFRI Relative Value Total Return Index:Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities.Managers employ a variety of fundament

224、al and quantitative techniques to establish investment theses,and security types range broadly across equity,fixed income,derivative or other security types.Fixed income strategies are typically quantitatively driven to measure the existing relationship between instruments and,in some cases,identify

225、 attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the investment manager.RV position may be involved in corporate transactions also,but as opposed to ED exposures,the investment thesis is predicated on realization of a pricing

226、discrepancy between related securities,as opposed to the outcome of the corporate transaction.Note:HFRI Indices have limitations(some of which are typical of other widely used indices).These limitations include survivorship bias(the returns of the indices may not be representative of all the hedge f

227、unds in the universe because of the tendency of lower performing funds to leave the index);heterogeneity(not all hedge funds are alike or comparable to one another,and the index may not accurately reflect the performance of a described style);and limited data(many hedge funds do not report to indice

228、s,and,therefore,the index may omit funds,the inclusion of which might significantly affect the performance shown.The HFRI Indices are based on information selfreported by hedge fund managers that decide on their own,at any time,whether or not they want to provide,or continue to provide,information t

229、o HFR Asset Management,L.L.C.Results for funds that go out of business are included in the index until the date that they cease operations.Therefore,these indices may not be complete or accurate representations of the hedge fund universe,and may be biased in several ways.Returns of the underlying he

230、dge funds are net of fees and are denominated in USD.MSCI ACWI Gross Total Return USD Index:The MSCI ACWI Gross Return USD Index is a free-float weighted equity index.MXWD includes both emerging and developed world markets.Note:MSCI makes no express or implied warranties or representations and shall

231、 have no liability whatsoever with respect to any MSCI data contained herein.The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.This report is not approved,reviewed,or produced by MSCI.NCREIF Property Index is a quarterly time

232、series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.Refinitiv Equal Weight Commodity Index:The Continuous Commodity Futures Price Index is an equal-wei

233、ghted geometric average of commodity price levels relative to the base year average price.U.S.High Yield Fixed Income:Bloomberg U.S.Corporate High Yield Bond Index covers the universe of fixed-rate,noninvestment-grade debt.U.S.Large Cap Equities:S&P 500 Index consists of 500 stocks chosen for market

234、 size,liquidity,and industry group representation.It is a market-value-weighted index with each stocks weight in the index proportionate to its market value.U.S.Mid Cap Equities:Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index,which represent appr

235、oximately 25%of the total market capitalization of the Russell 1000 Index.U.S.Municipal Fixed Income:Bloomberg U.S.Municipal High Yield Index is considered representative of the broad market for investment grade,tax-exempt bonds with a maturity of at least one year.U.S.Small Cap Equities:Russell 200

236、0 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index,which represents approximately 8%of the total market capitalization of the Russell 3000 Index.U.S.Taxable Investment Grade Fixed Income:Bloomberg U.S.Aggregate Bond Index is a broad-based measure of the invest

237、ment grade,US dollar-denominated,fixed-rate taxable bond market.U.S.Treasury Fixed Income:Bloomberg U.S.Treasury Bills(1-3M)Index is representative of money markets.Risk considerationsForecasts and targets are based on certain assumptions and on our current views of market and economic conditions,wh

238、ich are subject to change.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 environme

239、nts due to numerous factors,some of which may be unpredictable.Asset allocation and diversification do not guarantee investment returns or eliminate risk of loss.Each asset class has its own risk and return characteristics,which should be evaluated carefully before making any investment decision.The

240、 level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve.Some of the risks associated with the representative asset classes include:2023 Outlook|27Please see pages 2527 for important definitions an

241、d risk considerations.General market risksStock markets,especially foreign markets,are volatile.A stocks value may fluctuate in response to general economic and market conditions,the prospects of individual companies,and industry sectors.International investing has additional risks including those a

242、ssociated with currency fluctuation,political and economic instability,and different accounting standards.This may result in greater share price volatility.These risks are heightened in emerging and frontier markets.Investing in small-and mid-cap companies involves additional risks,such as limited l

243、iquidity and greater volatility.Investments in fixed-income securities,including municipal securities,are subject to market,interest rate,credit,liquidity,inflation,prepayment,extension,and other risks.Bond prices fluctuate inversely to changes in interest rates.Therefore,a general rise in interest

244、rates can result in a decline in the bonds price.High-yield fixed-income securities are considered speculative,involve greater risk of default,and tend to be more volatile than investment-grade fixed-income securities.Municipal securities may also be subject to the alternative minimum tax and legisl

245、ative and regulatory risk,which is the risk that a change in the tax code could affect the value of taxable or tax-exempt interest income.Sovereign debt is generally a riskier investment when it comes from a developing country and tends to be a less risky investment when it comes from a developed co

246、untry.The stability of the issuing government is an important factor to consider,when assessing the risk of investing in sovereign debt,and sovereign credit ratings help investors weigh this risk.U.S.government securities are backed by the full faith and credit of the federal government as to paymen

247、t of principal and interest if held to maturity.Although free from credit risk,they are subject to interest rate risk.Mortgage-related securities are subject to prepayment and call risks in addition to the risks of investing in debt securities.Call risk is the risk that the issuer will redeem the is

248、sue prior to maturity.This may result in reinvestment risk,which means the proceeds will generally be reinvested in a less favorable environment.Changes in prepayments may significantly affect yield,average life,and expected maturity.Investment in Master Limited Partnerships(MLPs)involves certain ri

249、sks which differ from an investment in the securities of a corporation.MLPs may be sensitive to price changes in oil,natural gas,etc.,regulatory risk,and rising interest rates.A change in the current tax law regarding MLPs could result in the MLP being treated as a corporation for federal income tax

250、 purposes which would reduce the amount of cash flows distributed by the MLP.Other risks include the volatility associated with the use of leverage;volatility of the commodities markets;market risks;supply and demand;natural and man-made catastrophes;competition;liquidity;market price discount from

251、Net Asset Value and other material risks.Currency risk is the risk that foreign currencies will decline in value relative to that of the U.S.dollar.Exchange rate movement between the U.S.dollar and foreign currencies may cause the value of a portfolios investments to decline.Bond rating firms,such a

252、s Moodys,Standard&Poors and Fitch,use different designations consisting of upper-and lower-case letters A and B to identify a bonds credit quality rating.AAA and AA(high credit quality)and A and BBB(medium credit quality)are considered investment grade.Credit ratings for bonds below these designatio

253、ns(BB,B,CCC,etc.)are considered low credit quality,and are commonly referred to as junk bonds.Sector investingSector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolios vulnerability to any single economic,p

254、olitical,or regulatory development affecting the sector.This can result in greater price volatility.Risks associated with the Information Technology sector include increased competition from domestic and international companies,unexpected changes in demand,regulatory actions,technical problems with

255、key products,and the departure of key members of management.Technology and Internet-related stocks,especially smaller,less-seasoned companies,tend to be more volatile than the overall market.Real estate investments have special risks,including possible illiquidity of the underlying properties,credit

256、 risk,interest rate fluctuations,and the impact of varied economic conditions.Alternative investments Alternative investments,such as hedge funds,private equity/private debt,and private real estate funds are speculative and involve a high degree of risk that is appropriate only for those investors w

257、ho have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program.They entail significant risks that can include losses due to leveraging or other speculative investment practices,lac

258、k of liquidity,volatility of returns,restrictions on transferring interests in a fund,potential lack of diversification,absence and/or delay of information regarding valuations and pricing,complex tax structures and delays in tax reporting,and less regulation and higher fees than mutual funds.Hedge

259、fund,private equity,private debt,and private real estate fund investing involve other material risks,including capital loss and the loss of the entire amount invested.A funds offering documents should be carefully reviewed prior to investing.Private debt strategies seek to actively improve the capit

260、al structure of a company,often through debt restructuring and deleveraging measures.Such investments are subject to potential default,limited liquidity,the creditworthiness of the private company,and the infrequent availability of independent credit ratings for private companies.Investing in distre

261、ssed companies is speculative and involves a high degree of risk.Because of their distressed situation,these securities may be illiquid,have low trading volumes,and be subject to substantial interest rate and credit risks.Private capital investments are complex,speculative investment vehicles not ap

262、propriate for all investors.They are not subject to the same regulatory requirements as registered investment products and engage in leverage and other aggressive investment practices.There is often limited(or even nonexistent)liquidity and a lack of transparency regarding the underlying assets.Hedg

263、e fund strategies,such as Event Driven,Equity Hedge,Global Macro,Relative Value,Structured Credit,and Long/Short Credit,may expose investors to the risks associated with the use of short selling,leverage,derivatives,and arbitrage methodologies.Short sales involve leverage and theoretically unlimited

264、 loss potential because the market price of securities sold short may continuously increase.The use of leverage in a portfolio varies by strategy.Leverage can significantly increase return potential but create greater risk of loss.Derivatives generally have implied leverage,which can magnify volatil

265、ity and may entail other risks,such as market,interest rate,credit,counterparty,and management risks.Private capital investments are complex,speculative investment vehicles not appropriate for all investors.They are not subject to the same regulatory requirements as registered investment products an

266、d engage in leverage and other aggressive investment practices.There is often limited(or even nonexistent)liquidity and a lack of transparency regarding the underlying assets.Real assets Real assets are subject to the risks associated with real estate,commodities,and other investments and may not be

267、 appropriate for all investors.The commodities markets,including investments in gold and other precious metals,are considered speculative,carry substantial risks,and have experienced periods of extreme volatility.Investing in a volatile and uncertain commodities market may cause a portfolio to rapid

268、ly increase or decrease in value,which may result in greater share price volatility.Investments in commodities may be affected by changes in overall market movements,commodity index volatility,changes in interest rates,or factors affecting a particular industry or commodity.Products that invest in c

269、ommodities may employ more complex strategies,which may expose investors to additional risks.Investment in real estate securities includes risks,such as the possible illiquidity of the underlying properties,credit risk,interest rate fluctuations,and the impact of varied economic conditions.Investmen

270、t expertise and advice to help you succeed financiallyWells Fargo Investment Institute is home to 200 investment professionals focused on investment strategy,asset allocation,portfolio management,manager reviews,and alternative investments.Its mission is to deliver timely,actionable advice that can

271、help investors achieve their financial goals.For assistance with your investment planning or to discuss the points in this report,please talk to your investment professional.Follow us on Twitter at WFInvestingGlobal Investment Strategy(GIS)is a division of Wells Fargo Investment Institute,Inc.(WFII)

272、.WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank,N.A.,a bank affiliate of Wells Fargo&Company.The information in this report was prepared by the Global Investment Strategy(GIS)division of WFII.Opinions represent GIS opinion as of the date of this report;are fo

273、r general informational purposes only;and are not intended to predict or guarantee the future performance of any individual security,market sector,or the markets generally.GIS does not undertake to advise you of any change in its opinions or the information contained in this report.Wells Fargo&Compa

274、ny affiliates may issue reports or have opinions that are inconsistent with,and reach different conclusions from,this report.The information contained herein constitutes general information and is not directed to,designed for,or individually tailored to any particular investor or potential investor.

275、This report is not intended to be a client-specific suitability or best interest 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 sole basis for investment decisions.Do not select an asset class or i

276、nvestment product based on performance alone.Consider all relevant information,including your existing portfolio,investment objectives,risk tolerance,liquidity needs,and investment time horizon.Wells Fargo Wealth and Investment Management,a division within the Wells Fargo&Company enterprise,provides

277、 financial products and services through bank and brokerage affiliates of Wells Fargo&Company.Brokerage products and services offered through Wells Fargo Clearing Services,LLC,a registered broker-dealer and nonbank affiliate of Wells Fargo&Company.Bank products are offered through Wells Fargo Bank,N

278、.A.Wells Fargo Advisors is registered with the U.S.Securities and Exchange Commission and the Financial Industry Regulatory Authority but is not licensed or registered with any financial services regulatory authority outside of the U.S.Non-U.S.residents who maintain U.S.-based financial services acc

279、ounts with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments,investment transactions,or communications made with Wells Fargo Advisors.Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services,LLC,and Wells Fargo Advisors Financial Network,LLC,Members SIPC,separate registered broker-dealers and nonbank affiliates of Wells Fargo&Company.2022 WellsFargo Investment Institute.All rights reserved.CAR-96232(Rev.00,1 ea.)