This blog post originally ran as a State of the Markets commentary by Darrell Cronk, CFA, President, Wells Fargo Investment Institute and Chief Investment Officer, Wealth and Investment Management

2019 begins with markets fixated on a myriad of key risks for this year. Through the holidays, I was asked many times: What would reinstate confidence and put the markets back on a steady path forward to continue this expansion cycle? I would propose five New Year’s resolutions that could certainly help.

October brought a significant drawdown across major U.S. equity indices. Fears over the potentially negative effects of tariffs and higher interest rates on global growth have been building for most of the year. We think the speed of interest rate increases (as opposed to their absolute levels) may have been the catalyst that spooked U.S. markets into correction territory, with technology bearing the brunt of the pullback. We are closely watching for additional risk-off signals. Credit spreads have widened, as is typically the case when volatility spikes. But, the fixed-income market isn’t showing signs of panic. The continued volatility in emerging markets bears watching. Against this mixed view of current market dynamics, we believe several factors support the case to sustain long-term U.S. growth equity allocations.

After the market closes on Friday, September 28, S&P Dow Jones Indices and MSCI will implement structural changes to the Global Industry Classification Standard (GICS)—the classification standard they use to categorize companies by sector, industry, and sub-industry within their market indices. Only 3 of the 11 GICS sectors will be affected, but changes to those 3 will be significant. It’s important for equity investors—especially those who use index-tracking strategies—to learn what’s changing and understand the impact of the changes on key characteristics of these sectors.

With contributions from Daniel Sarnowski, Portfolio Specialist, WFAM Global Fixed Income

We are now in a period of rising interest rates, and investors may wonder how municipal bonds have fared in past periods of rising rates and if they have a place within an asset allocation plan today. The answer is that, historically, municipal bonds have performed well when interest rates are increasing.

Our previous article—the first in a three-part series—provided overviews of five areas that have been experiencing tremendous growth through strong technological innovation or by leveraging advances in the internet and discussed each area’s key growth catalysts. We refer to these five areas as SCODI, which stands for:

  • Software as a Service (SaaS)
  • Cloud
  • Online retail
  • Digital payments
  • Internet of Things (IoT)

The world is racing toward universal connectivity. By 2020, the number of global internet users is projected to reach 4.1 billion, up 1.1 billion (37%) from 2015, and global Internet Protocol networks are expected to support 26.3 billion devices and connections by then—10 billion (61%) more than in 2015, according to Cisco Systems, Inc. With the soaring demand, five innovative areas have experienced tremendous growth that hasn’t yet shown signs of slowing. We refer to these five areas as SCODI.