Wells Fargo believes that the US market will reach new heights by 2026, but then experience a decline in 2025.
According to the firm, tariffs are likely to cause unrest in 2019. However, historical data shows that a rebound from an extremely volatile market will lead the company towards high returns by 2026.
Wells Fargo Investment Institute released their “Midyear Outlook Report: Opportunities amid Uneven Terrain,” which presents a nuanced outlook for U.S. stock markets.
The Institute projects that 2026 will be a year of greater stability and gains.
This outlook emphasizes the importance of building portfolio resilience, using historical patterns for recovery, and carefully managing a global economy shaped by changing trade policies, corporate adaptability, and evolving trading policies.
Tariffs and slowdown will mark 2025 as a washout of gains
Wells Fargo’s strategists led by Darrell L. Cronk (President of WFII) see 2025 as the year in which gains on U.S. equities will be severely constrained.
It is primarily the uncertainty that persists around tariffs and negotiations on trade policy.
The trade frictions will likely present “a significant obstacle to market growth”, potentially reducing consumer buying power, and squeeze corporate profits as companies absorb higher costs.
Some companies have already halted capital expenditure on growth projects due to the uncertainty, affecting overall economic momentum.
Research firm suggests a slowdown in the economy, but not a recession. This is due to “steady underpinning support” and “looming extensions of tax policies.”
Consumer spending is temporarily impacted by the economic climate, which includes a moderated job growth rate and real income increases.
Inflation and economic growth could be further dampened by “front-loaded” tariffs and immigration risks in the second half of 2025. This would increase volatility on financial markets.
Volatility is a sign of opportunity
Wells Fargo believes that the long-term trajectory of the stock market is positive, despite the expected turbulence.
They found that historically, uncertainty and volatility have often created the most favorable opportunities for investors.
WFII examined 10 previous periods where the volatility was high and found that 18-month S&P 500 Index returns were 30% on average.
The historical context is what underpins the recommendation that investors “follow history’s lesson and lean towards equities”, even in times of uncertainty.
According to the institute, without a major recession the chances of a further decline in the equity market beyond April 2025’s lows are limited.
Earnings of 2026 and the bright outlook for corporate earnings
It is crucial to track the trajectory of earnings.
Wells Fargo’s 2026 outlook is more positive. While the tariffs will squeeze companies’ profit margins by 2025 and force them to adjust, Wells Fargo sees an optimistic future.
Wells Fargo suggests focusing your portfolio on quality allocations, with an emphasis on large and midcap stocks in the U.S. over smaller options.
The analysts also prefer developed markets over emerging ones, predicting a “resilient” dollar until 2026.
When market corrections present opportunities, investors are encouraged to add Artificial Intelligence to their portfolios and to consider moving from sectors that tend to be defensive, such as consumer staples, to sectors with a higher cyclicality, like energy, communications services, or information technology.
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