Top five portfolio ideas to help you prepare for 2024

A winding road on a mountain

We believe that 2024 will mark an important pivot point for the global economy and capital markets, and our 2024 Outlook offers five ideas to help you prepare.

Darrell L. Cronk, CFA; President, Wells Fargo Investment Institute; Chief Investment Officer, Wealth & Investment Management
Darrell L. Cronk, CFA
President, Wells Fargo Investment Institute
Chief Investment Officer, Wealth & Investment Management

The market’s performance over the past two years has been uneven for investors. The good news is Wells Fargo Investment Institute sees brighter days ahead. But before they arrive, the clouds have been gathering, and we expect the global economic slowdown (including in the U.S.) will persist as the calendar turns to 2024.

Given this outlook, how should you prepare for 2024? Below are Wells Fargo Investment Institute’s top five portfolio ideas for your consideration:

1. Stay defensive but prepare for early-cycle recovery

We continue to prefer more defensive portfolio positioning heading into an economic slowdown. Our guidance favors fixed income over investments in global company stocks that track economic growth most closely. We also favor an overweight position in commodity investments, which tend to perform well in inflationary environments.

Rebalancing your portfolio can help you manage risk and may help returns over time. The first step is to harvest profits in holdings that have become expensive and appear at risk of losing value. Next, consider reinvesting the proceeds in sectors that represent long-term value.

Our tactical favorites are the Industrials, Materials, and Health Care sectors. These sectors appear reasonably priced and will help build out the U.S. economy’s infrastructure. They also include investments in green energy projects and returning select manufacturing to the U.S.

2. Anticipate a pivot to riskier equity classes

We anticipate an economic slowdown will weigh on equity markets, allowing for a potential pivot away from our defensive positioning. As we move deeper into 2024, we foresee a shift from a narrower focus on higher-quality or defensive assets to a broader opportunity set that includes assets that typically outperform defensive assets while the economy is early in a rebound or recovery.

3. Lock in attractive long-term bond yields

Real (inflation-adjusted) yields (as measured by the U.S. Treasury 10-year yield after subtracting core inflation) turned positive in September. We believe today is an opportunity to lock in the highest yields in decades. A bond from a high-quality issuer (to reduce default risk) can lock in coupon payments and a known yield out to the maturity date.

While certificate-of-deposit (CD) rates are the most attractive in decades, if inflation and short-term rates fall next year, as we expect, it likely will be difficult to renew a CD at today’s rates. Building a laddered bond portfolio with multiple maturities is a way to take advantage of high rates and hedge against the possibility of variable rates down the road.

4. For qualified investors, consider alternative-investment strategies

We prefer allocations to defensive hedge-fund and private-capital strategies, which could diversify portfolios as the economic slowdown creates volatility in traditional equity and bond markets. Macro strategies follow market trends — whether higher or lower — and have stood out for their low correlation to global risk assets, including stocks and bonds. Relative Value strategies historically have provided defensive characteristics and may offer positive performance. Within the private-capital strategies, we favor Growth Equity and Small- and Mid-Cap Buyout equity strategies, as well as the Distressed and Special Situations debt strategy.

5. Use pullbacks to add to commodities

Although commodity performance may moderate, any pullback in prices ahead of a pivot to stronger economic growth may offer opportunities to increase exposure at a reasonable cost. We prefer a diversified commodity allocation and would not concentrate exposure in one class or subclass, including gold.

For more on these top five portfolio ideas as well as details on what we expect in the year ahead, download Wells Fargo Investment Institute’s “2024 Outlook: A pivotal year for the economy and markets” report.

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.