The message at the Wells Fargo Advantage Funds Market Strategists breakfast in New York City on Tuesday was optimistic: the stock market may be contracting, but the economy is slowly recovering.
“I don’t think there will be a double dip recession,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management Group, said at the event. “There is too much fiscal liquidity. There may be sub-par growth but there is still growth.”
John Lynch, chief equity strategist at Evergreen Investments, a Wells Fargo company, sees the economy’s expansion as a U-shaped expansion. In the last four months, Lynch said, $400 billion has flowed out of equities and into bond funds as investors flock to safety. “The catalyst that will change the negative investor sentiment is a turn around in the stock market,” Lynch explained. “I want to see the stock market escalate.”
One way to pump some optimism back into the stock market is to gain some clarity around taxes, said Jacobsen. For now, Jacobsen sees the bond and equity rally, as well as the commodity decline, over the last few days as an encouraging sign. As investors move into stocks and bonds and away from commodities it’s a sign of risk-taking.
Yet a concern is that banks have not ramped up their lending, a necessary component of a recovery. “We want banks to lend more but we also want them to be secure,” Jacobsen said.
Jim Kochan, chief fixed-income strategist at Wells Fargo Funds Distributor, thinks investors need to take more risks. “I think active managers will perform better than passive managers,” he said.
Kochan explained that there have been good flows into muni bonds and bond funds, but too many investors have put too many securities into short-term funds with too little yield.
Lynch suggests international stocks as part of a diversified portfolio, with emerging market stocks favored over developed market stocks. Lynch says 25% of an investor’s portfolio should consist of international equities.
Lynch predicts that by late 2011-early 2012 the United States will return to historically average growth.