US Overview

Stimulus to boost economic growth in the U.S.

The U.S. economy appears to be losing some momentum as the calendar turns to 2021. The cause of the recent slowdown is clear. The public health situation continues to deteriorate, which has led to a patchwork of new business restrictions, diminished consumer confidence and weaker-than-anticipated consumer spending. As a result, we have altered our estimate for real GDP growth in Q4-2020 and Q1-2021, which we now expect to rise 4.0% and 1.3%, respectively, on a quarterly annualized basis.

Despite some near-term moderation, we are a bit more constructive on 2021 as a whole thanks to several new developments. For one, the economy stands to benefit from the recent injection of fiscal support. The U.S. Congress passed a fiscal relief bill in late December, which was subsequently signed into law by President Trump. In addition to an appropriations bill that funds normal government operations, the package provides roughly $900 billion in financial relief for households, businesses and state & local governments.

What’s more, after a slow start, the pace of vaccine deployment is gaining momentum. According to health experts, achieving herd immunity to COVID is still possible by the end of the summer. This would unlock many of the activities rendered unfeasible by a highly transmissible virus. Taking all of this into consideration, we now anticipate a slightly more robust pace of real GDP growth in the years ahead. We look for real GDP to expand by 4.6% in 2021 and 4.8% in 2022.

International Overview

Outside U.S. Economic Growth Outlook Weakens

Outside of the United States, the global growth outlook has generally weakened since our previous monthly update. COVIDcontinues to run rampant, particularly in the northern hemisphere where cold weather has forced many people and activities indoors. Subsequently, our global growth forecast has fallen by a couple tenths of a percentage point for 2021, with only about half of that offset with a higher 2022 forecast.

A new variant of COVID has emerged in the United Kingdom that appears to be significantly more transmissible, and the nation is currently experiencing a crushing wave of COVIDspread that led the British government to institute a nationwide lockdown shortly after the start of the year. In continental Europe, tighter holiday restrictions have been extended in many countries to keep new COVID cases from rising exponentially. There even have been some cracks in the armor in fortress Asia. New cases in Japan have skyrocketed, and in China, a few hundred positive tests have led to a lockdown of more than 11 million people in the Hebei province near Beijing.

Nevertheless, financial markets appear to be more focused on the medium- to long-run outlook, which looks much brighter. Although vaccine dissemination has been slow in most countries, it should accelerate in the months ahead. Combined with warmer weather, naturally acquired COVID immunity and elevated household savings, the second half of 2021 and 2022 should be much better days for the global economy.

Economics Group

Securities2 Stimulus to Boost Economic Growth in the U.S.

While we expect the recently enacted fiscal relief bill to bolster consumer spending in 2021, personal consumption appears likely to weaken in Q1-2021. So far, the relatively quick rebound in consumer spending has been propelled by an upshift in spending on durable goods, which, by definition, last a long time and don’t need to be purchased very often. Meanwhile, spending on services, especially close-contact services, remains depressed by COVID-re lated safety precautions. If most of the recent retail sales reports are any indication (sales declined in October and November), consumer spending has already started to lose momentum.

Although we expect a slight contraction in Q1-2021, personal consumption expenditures are poised for substantial growth over the remainder of the year. Direct checks, expanded unemployment benefits and a revamped Paycheck Protection Program will boost personal income and savings, which should support stronger consumption. An immediate increase to consumer spending seems unlikely, given many close-contact activities are currently limited by COVID. The eventual widespread distribution of vaccines, however, should unleash pent-up demand for these services and help drive consumer spending higher over the course of the year.

Since our last forecast update, the new political landscape has come into better focus. With the results of the Senate election in Georgia now settled, the Democrats have unified control of the House, Senate and White House. Although winning control of the Senate lifts the odds of more spending down the line, additional spending is not a forgone conclusion. Democrats have razor-thin majorities in both chambers of Congress that will make it difficult to pass large pieces of legislation. The timing and magnitude of another fiscal relief package is not foreseeable at the moment, so we are moving forward with the assumption that no additional fiscal relief occurs. That noted, another round of stimulus spending would bring some additional upside to our

Wells Fargo Securities

forecast for consumer spending and economic growth more broadly. Although we have upgraded our forecast for consumer spending, we have not materially changed our expectation for a modest upturn in business fixed investment this year. The rise of remote work initially led to a boom in spending on laptops and communication equipment, and some payback now appears in order. Strengthening in industrial and transportation equipment should help offset some of this weakness, however. The Boeing 737-MAX has been cleared by the FAA and shipments have started to resume, which should help support overall business investment. By contrast, nonresidential investment spending looks set to weaken further this year alongside a collapse in new commercial construction starts and still-low levels of oil and gas drilling activity.

Meanwhile, we remain of the belief that the recent strength in the housing market will extend throughout 2021. Mortgage rates continue to test new lows and the race for more space to accommodate virtual activities continues to spur ro bust home sales, single-family home building and home improvement spending. Even if mortgage rates move meaningfully higher or the work-from-home era comes to an abrupt end—neither of which are likely, in our view–demographics will remain supportive of housing activity in the years ahead.

In short, the latest round of fiscal relief should lead to a slightly stronger pace of overall economic growth in 2021. We have revised our inflation forecast slightly higher to reflect a stronger pace of consumption as well as higher oil prices. That said, we anticipate the core PCE deflator to average 1.7% for the year in 2021 and 1.8% in 2022, below the 2% average inflation target which would likely prompt the Fed to tighten monetary policy. Along similar lines, we look for the unemployment rate, which currently stands at 6.7%, to end the year at 6.2% and 5.0% in 2022. Bearing all of this in mind, we continue to expect the Fed to maintain its current target range of 0.00%-0.25% through at least the end of 2022.

Download The Full Monthly Economic Outlook

Recently, the stock market has experienced high levels of volatility. If you are thinking about participating in fast moving markets, please take the time to read the information below. Wells Fargo Investments, LLC will not be restricting trading on fast moving securities, but you should understand that there can be significant additional risks to trading in a fast market. We've tried to outline the issues so you can better understand the potential risks. If you're unsure about the risks of a fast market and how they may affect a particular trade you've considering, you may want to place your trade through a phone agent at 1-800-TRADERS. The agent can explain the difference between market and limit orders and answer any questions you may have about trading in volatile markets. Higher Margin Maintenance Requirements on Volatile Issues The wide swings in intra-day trading have also necessitated higher margin maintenance requirements for certain stocks, specifically Internet, e-commerce and high-tech issues. Due to their high volatility, some of these stocks will have an initial and a maintenance requirement of up to 70%. Stocks are added to this list daily based on market conditions. Please call 1-800-TRADERS to check whether a particular stock has a higher margin maintenance requirement. Please note: this higher margin requirement applies to both new purchases and current holdings. A change in the margin requirement for a current holding may result in a margin maintenance call on your account. Fast Markets A fast market is characterized by heavy trading and highly volatile prices. These markets are often the result of an imbalance of trade orders, for example: all "buys" and no "sells." Many kinds of events can trigger a fast market, for example a highly anticipated Initial Public Offering (IPO), an important company news announcement or an analyst recommendation. Remember, fast market conditions can affect your trades regardless of whether they are placed with an agent, over the internet or on a touch tone telephone system. In Fast Markets service response and account access times may vary due to market conditions, systems performance, and other factors. Potential Risks in a Fast Market "Real-time" Price Quotes May Not be Accurate Prices and trades move so quickly in a fast market that there can be significant price differences between the quotes you receive one moment and the next. Even "real-time quotes" can be far behind what is currently happening in the market. The size of a quote, meaning the number of shares available at a particular price, may change just as quickly. A real-time quote for a fast moving stock may be more indicative of what has already occurred in the market rather than the price you will receive. Your Execution Price and Orders Ahead In a fast market, orders are submitted to market makers and specialists at such a rapid pace, that a backlog builds up which can create significant delays. Market makers may execute orders manually or reduce size guarantees during periods of volatility. When you place a market order, your order is executed on a first-come first-serve basis. This means if there are orders ahead of yours, those orders will be executed first. The execution of orders ahead of yours can significantly affect your execution price. Your submitted market order cannot be changed or cancelled once the stock begins trading. Initial Public Offerings may be Volatile IPOs for some internet, e-commerce and high tech issues may be particularly volatile as they begin to trade in the secondary market. Customers should be aware that market orders for these new public companies are executed at the current market price, not the initial offering price. Market orders are executed fully and promptly, without regard to price and in a fast market this may result in an execution significantly different from the current price quoted for that security. Using a limit order can limit your risk of receiving an unexpected execution price. Large Orders in Fast Markets Large orders are often filled in smaller blocks. An order for 10,000 shares will sometimes be executed in two blocks of 5,000 shares each. In a fast market, when you place an order for 10,000 shares and the real-time market quote indicates there are 15,000 shares at 5, you would expect your order to execute at 5. In a fast market, with a backlog of orders, a real-time quote may not reflect the state of the market at the time your order is received by the market maker or specialist. Once the order is received, it is executed at the best prices available, depending on how many shares are offered at each price. Volatile markets may cause the market maker to reduce the size of guarantees. This could result in your large order being filled in unexpected smaller blocks and at significantly different prices. For example: an order for 10,000 shares could be filled as 2,500 shares at 5 and 7,500 shares at 10, even though you received a real-time quote indicating that 15,000 shares were available at 5. In this example, the market moved significantly from the time the "real-time" market quote was received and when the order was submitted. Online Trading and Duplicate Orders Because fast markets can cause significant delays in the execution of a trade, you may be tempted to cancel and resubmit your order. Please consider these delays before canceling or changing your market order, and then resubmitting it. There is a chance that your order may have already been executed, but due to delays at the exchange, not yet reported. When you cancel or change and then resubmit a market order in a fast market, you run the risk of having duplicate orders executed. Limit Orders Can Limit Risk A limit order establishes a "buy price" at the maximum you're willing to pay, or a "sell price" at the lowest you are willing to receive. Placing limit orders instead of market orders can reduce your risk of receiving an unexpected execution price. A limit order does not guarantee your order will be executed -" however, it does guarantee you will not pay a higher price than you expected. Telephone and Online Access During Volatile Markets During times of high market volatility, customers may experience delays with the Wells Fargo Online Brokerage web site or longer wait times when calling 1-800-TRADERS. It is possible that losses may be suffered due to difficulty in accessing accounts due to high internet traffic or extended wait times to speak to a telephone agent. Freeriding is Prohibited Freeriding is when you buy a security low and sell it high, during the same trading day, but use the proceeds of its sale to pay for the original purchase of the security. There is no prohibition against day trading, however you must avoid freeriding. To avoid freeriding, the funds for the original purchase of the security must come from a source other than the sale of the security. Freeriding violates Regulation T of the Federal Reserve Board concerning the extension of credit by the broker-dealer (Wells Fargo Investments, LLC) to its customers. The penalty requires that the customer's account be frozen for 90 days. Stop and Stop Limit Orders A stop is an order that becomes a market order once the security has traded through the stop price chosen. You are guaranteed to get an execution. For example, you place an order to buy at a stop of $50 which is above the current price of $45. If the price of the stock moves to or above the $50 stop price, the order becomes a market order and will execute at the current market price. Your trade will be executed above, below or at the $50 stop price. In a fast market, the execution price could be drastically different than the stop price. A "sell stop" is very similar. You own a stock with a current market price of $70 a share. You place a sell stop at $67. If the stock drops to $67 or less, the trade becomes a market order and your trade will be executed above, below or at the $67 stop price. In a fast market, the execution price could be drastically different than the stop price. A stop limit has two major differences from a stop order. With a stop limit, you are not guaranteed to get an execution. If you do get an execution on your trade, you are guaranteed to get your limit price or better. For example, you place an order to sell stock you own at a stop limit of $67. If the stock drops to $67 or less, the trade becomes a limit order and your trade will only be executed at $67 or better. Glossary All or None (AON) A stipulation of a buy or sell order which instructs the broker to either fill the whole order or don't fill it at all; but in the latter case, don't cancel it, as the broker would if the order were filled or killed. Day Order A buy or sell order that automatically expires if it is not executed during that trading session. Fill or Kill An order placed that must immediately be filled in its entirety or, if this is not possible, totally canceled. Good Til Canceled (GTC) An order to buy or sell which remains in effect until it is either executed or canceled (WellsTrade® accounts have set a limit of 60 days, after which we will automatically cancel the order). Immediate or Cancel An order condition that requires all or part of an order to be executed immediately. The part of the order that cannot be executed immediately is canceled. Limit Order An order to buy or sell a stated quantity of a security at a specified price or at a better price (higher for sales or lower for purchases). Maintenance Call A call from a broker demanding the deposit of cash or marginable securities to satisfy Regulation T requirements and/or the House Maintenance Requirement. This may happen when the customer's margin account balance falls below the minimum requirements due to market fluctuations or other activity. Margin Requirement Minimum amount that a client must deposit in the form of cash or eligible securities in a margin account as spelled out in Regulation T of the Federal Reserve Board. Reg. T requires a minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. Market Makers NASD member firms that buy and sell NASDAQ securities, at prices they display in NASDAQ, for their own account. There are currently over 500 firms that act as NASDAQ Market Makers. One of the major differences between the NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. Market Order An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace. Specialists Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy. Stop An order that becomes a market order once the security has traded through the designated stop price. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and will be executed at the current market price. This price may be higher or lower than the stop price. Sell stops are entered below the current market price. If the price moves to or below the stop price, the order becomes a market order and will be executed at the current market price. Stop Limit An order that becomes a limit order once the security trades at the designated stop price. A stop limit order instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order. These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.

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