Fed Pivot Triggers Market Volatility, Wells Fargo: Don’t Chase the Rally, Wait for a Pullback

Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, stated that retail investors should avoid chasing market rallies and instead position themselves to buy during pullbacks.

“Don’t chase the highs; be prepared to enter the market at any time,” Wren advised, emphasizing that maintaining a clear long-term perspective is crucial during periods of market volatility.

In an interview, Wren pointed out that the recent market fluctuations are a natural reaction to the Federal Reserve’s shift from an easing bias to a tightening stance. He said, “Whenever the Federal Reserve makes such a policy shift, the market always experiences a downside move, especially after the significant rally we’ve seen over the past three and a half years.”

Wren gave an optimistic economic outlook, projecting economic growth of about 2% to 2.5% this year and next, with corporate earnings expected to rise 25% this year and approximately 15% next year.

A key assumption underlying these forecasts is that shipping in the Persian Gulf will resume smoothly in the near future. Wren admitted that if this expectation is not met, it will trigger problems for the market.

In terms of sector allocation, Wells Fargo Investment Institute has gradually reduced exposure to the energy sector (XLE, AMLP, VDE, XOP) and related commodity holdings. Wren predicted, “The best-performing sector this year has been energy, but I don’t think that will be the case by year-end.” He suggested clients redirect funds elsewhere.

The strategist is optimistic about sectors with lower valuations that are also related to the artificial intelligence theme, including industrials (XLI), utilities (XLU), materials (XLB), and financials (XLF). Although Wells Fargo still maintains an overweight position on the technology sector (XLK) and considers AI a more enduring long-term trend, Wren stated that the team is actively seeking allocation opportunities in the aforementioned areas.

Wren concluded by reiterating his core advice to retail investors: maintain clear judgment, do not be swayed by daily headlines, and act decisively when pullbacks occur. “Think ahead. If the economic outlook is positive and the market pulls back, you need to be ready to get in.”