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Weekly perspective on current market sentiment February 2, …

2022 Wells Fargo Investment Institute. All rights reserved. Page 1 of 2 Weekly perspective on current market sentiment February 2, 2022 Traders versus investors Key takeaways The S&P 500 breached a major technical support level on January 21 when it closed below the 200-day moving average. Since then, it has been a daily market battle between traders seeking short-term profits and longer-term investors trying to take advantage of an opportunity. Have you looked at the correction in the market as an opportunity? Have you been executing your well-thought-out plan to put sidelined cash to work in the equity market ? Sometimes quick drops in the market cause nervous investors to run for cover rather than see the potential opportunity.

Weekly perspective on current market sentiment February 2, 2022 . Traders versus investors . Key takeaways • The S&P 500 breached a major technical support level on January 21 when it closed below the 200-day moving average. • Since then, it has been a daily market battle between traders see king

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Transcription of Weekly perspective on current market sentiment February 2, …

1 2022 Wells Fargo Investment Institute. All rights reserved. Page 1 of 2 Weekly perspective on current market sentiment February 2, 2022 Traders versus investors Key takeaways The S&P 500 breached a major technical support level on January 21 when it closed below the 200-day moving average. Since then, it has been a daily market battle between traders seeking short-term profits and longer-term investors trying to take advantage of an opportunity. Have you looked at the correction in the market as an opportunity? Have you been executing your well-thought-out plan to put sidelined cash to work in the equity market ? Sometimes quick drops in the market cause nervous investors to run for cover rather than see the potential opportunity.

2 In last week s piece, we commented on the S&P 500 s (SPX) break down and close below the much-watched 200-day moving average on Friday, January 21. Since that close, virtually every trading day, including Monday of this week, it s been a battle between traders who are seeking short-term profits as the market gyrates and investors who are taking advantage of downside selloffs to step in and buy equities with a view that reaches out well into the future. On a number of these recent days, a pattern emerged. Short-term traders made bets that the stock market was going to go down, but buyers stepped in and stabilized the market , eventually causing it to rise.

3 This resulted in a number of short squeezes where positions that would profit from a further equity drop had to be covered or exited to prevent further losses. Understand that a meaningful portion of each trading day s volume is made up of hedge funds and other speculators looking for a quick profit. While these speculators often get a bad rap, they do provide liquidity to the market and are part of the oil that helps the system function fluidly, most of the time. While traders have their place, we cater to investors who are attempting to build wealth over time. Given that, a key piece of the puzzle on market pullbacks depends on your forward outlook.

4 Ours remains positive. As we look out over the balance of this year, we see good economic growth, decelerating inflation, an improving labor market , and robust corporate earnings growth. That means we want to step in and be buyers when the stock market corrects. With that outlook, we continue to recommend both the Information Technology and Communication Services sectors for the quality and growth components of portfolios. Note that both of these sectors have underperformed the SPX over the course of the last six weeks. Take advantage of this relative underperformance. In addition, we recommend that investors look toward two other favorable cyclical sectors, Financials and Industrials, as places to boost exposure.

5 In terms of fixed income, we suggest sticking to an intermediate-term horizon. We favor municipal bonds and preferreds. In fixed income, we believe the idea is to stay defensive but to stay invested. In the current environment, expect more days where trader-induced volatility is met with buying coming from longer-term investors looking to take advantage of opportunities. We recommend being a buyer. Scott Wren Senior Global market Strategist Last Week s S&P 500 Index: + market Commentary Investment and Insurance Products: NOT FDIC Insured NO Bank Guarantee MAY Lose Value market Commentary | February 2, 2022 2022 Wells Fargo Investment Institute.

6 All rights reserved. Page 2 of 2 Risks Considerations Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.

7 Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Investments in fixed-income securities are subject to interest rate, credit/default, liquidity, inflation and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond s price. Credit risk is the risk that an issuer will default on payments of interest and principal.

8 This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity. Municipal bonds offer interest payments exempt from federal taxes, and potentially state and local income taxes. Municipal bonds are subject to credit risk and potentially the Alternative Minimum Tax (AMT). Quality varies widely depending on the specific issuer. Municipal securities are also subject to legislative and regulatory risk which is the risk that a change in the tax code could affect the value of taxable or tax-exempt interest income.

9 There are special risks associated with investing in preferred securities. Preferred securities are subject to interest rate and credit risks. Interest rate risk is the risk that preferred securities will decline in value because of changes in interest rates. Credit risk is the risk that an issuer will default on payments of interest and principal. Preferred securities are generally subordinated to bonds or other debt instruments in an issuer's capital structure, subjecting them to a greater risk of non-payment than more senior securities. In addition, the issue may be callable which may negatively impact the return of the security. Preferred dividends are not guaranteed and are subject to deferral or elimination.

10 Definitions An index is unmanaged and not available for direct investment. S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market . General Disclosures Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, , a bank affiliate of Wells Fargo & Company. The information in this report was prepared by Global Investment Strategy. Opinions represent GIS opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.


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