Wells Fargo is moving funds out of bonds and into stocks

Investing.com -- Wells Fargo said in a note Thursday that it is shifting its investment strategy, moving funds from bonds into stocks as market uncertainty creates new opportunities. 

The firm cited recent tariff policies and federal job cuts as factors weighing on investor sentiment but emphasized that these developments are unlikely to push the U.S. economy into a recession.

"Our outlook is why we adjusted our investment guidance last week and moved funds out of bonds and into stocks," Wells Fargo (NYSE:WFC) analysts wrote. 

The bank is particularly focused on mid-cap equities, which it sees as having strong potential amid current market conditions.

While recent media headlines have fueled concerns, Wells Fargo believes the economic impact of new tariffs and government layoffs will be manageable. 

They note that some companies will be able to mitigate tariff-related price increases by sourcing materials from alternative suppliers. 

"That means price increases to U.S. households and businesses are likely to be moderate and spread out into increments," the note stated.

On the labor front, the firm noted that federal job cuts have historically had limited economic impact. 

The bank highlights Oxford Economics data, which is said to show that following similar consolidations under Presidents Clinton and Obama, "50% of those laid-off workers got private-sector jobs and most of the rest ended up either in state or local governments or elsewhere in the federal government."

Wells Fargo also sees market sentiment as improving, pointing to last Friday’s strong rebound, where over 90% of S&P 500 stocks advanced. 

Given the likelihood of fixed-income volatility, the firm is shifting capital out of long-term debt into short-term debt to help preserve client assets.