A softening in home and commodity prices should translate into better returns for stock investors this year, investment strategists with Wells Fargo Private Client Services told a Denver audience of about 200 people Tuesday.
Investors flocked to hard assets, in particular real estate and gold, after the stock market moved sharply lower in 2000.
The run-up in hard assets has made stocks and other financial assets more attractive by comparison, said Dean Junkans, chief investment officer with Wells Fargo Private Client Services.
“Chasing real estate and commodities is not the best strategy,” said Ron Florance, director of asset allocation with Wells Fargo.
In some of the nation’s hottest real-estate markets, investors seeking double-digit returns have purchased as many as one of every five homes sold.
If rising interest rates cap home-price gains and chill the resale market, as seems to be occurring, those investors will get pinched.
Their pain will serve as a warning to look elsewhere for returns. Stocks could be where investors move their money.
U.S. stock values have risen about 6 percent a year on average for the past two years, Junkans said. Corporate earnings, in contrast, are up about 17 percent per year.
Growth companies, which have been out of favor for the past five years, should start seeing stronger interest in the near term, Florance said. International stocks should continue to outperform.
The softening in home prices won’t be severe enough to push the economy into a recession, predicted Michael Swanson, an economist with Wells Fargo.
Although U.S. consumer spending is expected to slow, consumer spending abroad is expected to pick up, benefiting many U.S. corporations.
The Wells Fargo team also predicts oil prices should soften as inventories rise and Americans continue to adjust their consumption.
The number of miles Americans drove, which rose at 2 percent or more a year in the past, remained nearly flat last year, Swanson said.
The forecasts count on U.S. economic growth holding in the 3 percent range this year. Swanson said Colorado should benefit if that happens.
“We see the Front Range outperforming the national economy,” Swanson said.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
