Investing.com — In a note to clients on Monday, Wells Fargo (NYSE: ) Investment Institute outlined its top five portfolio strategies for 2025, focusing on areas that will benefit from economic growth, liquidity and emerging trends like artificial intelligence (AI).
1) ‘Prepare for abundant liquidity to expand opportunities:’ Wells Fargo predicts that liquidity from government spending, Federal Reserve rate cuts and increased bank lending will boost consumer and corporate investment.
“That expected spending along with cash on the sidelines favors a full equity allocation, in our view,” Wells Fargo said in a report.
Communications services and specialty retail are highlighted as key beneficiaries of consumer spending, while the industrial and energy sectors will benefit from corporate investment.
The report also said bank reserves, while lower than peak levels, remained “ample” and should support credit growth.
are viewed favorably due to improving net interest margins and potential regulatory relief, while defensive sectors such as consumer staples and utilities could underperform in the short term.
2) ‘Positioned for a cyclical recovery, but remains tilted towards US assets:’ Wells Fargo expects stronger economic growth to drive a US-centered global recovery. The firm advises investing in “economically sensitive assets such as small caps” and being willing to expand those positions as the economy improves.
Meanwhile, assets such as US stocks and large-cap commodities could benefit from rising global demand.
3) ‘Rethink investment income:’ As the Federal Reserve lowers interest rates, Wells Fargo predicts that short-term yields will fall, while long-term yields could rise.
Investors should also consider dividend-paying stocks, the firm said, noting that “over $2.4 trillion on their balance sheets” positions U.S. large-cap companies to continue increasing dividend payouts.
4) ‘Consider expanding the possibilities in AI:’ While AI investment has fueled growth in semiconductors and cloud services, Wells Fargo predicts a slowdown in direct AI spending as investors focus on profits.
“We believe investors could benefit from the AI theme across the energy and communications services sectors and the interactive media and services sub-sectors, where some tangible efficiencies are starting to materialize.”
These sectors represent more attractive values than the major technology names, which are recommended by market weight. The next phase of AI will test its ability to “increase real productivity” and could drive further growth in earnings and capital expenditure.
5) ‘Keep extreme risks in perspective:’ Wells Fargo warns of “two hot wars, a transition in US leadership and increasingly widespread global political change” in 2025, indicating heightened event risks.
Instead of moving to cash, the firm advises on hedging commodities like energy and gold, as well as alternative investments like hedge funds. These strategies can “potentially deliver relatively attractive returns in various market environments.”
