With market volatility anticipated to proceed via the summer time, buyers ought to think about cushioning their portfolios with income-generating belongings, Wells Fargo Funding Institute mentioned in its mid-year outlook. Actually, earnings technology is without doubt one of the agency’s high 5 portfolio concepts for the remainder of 2025. Whereas the Treasury market has been rocky these days, fixed-income belongings are providing a gentle stream of money circulate, mentioned Tracie McMillion, head of Wells Fargo’s world asset allocation technique. “Money coming right into a portfolio may be essential to earnings buyers particularly, however it offers all buyers with optionality,” she mentioned throughout a panel dialogue Tuesday on the financial institution’s funding outlook. ‘Fireworks’ this summer time Wells Fargo expects restricted upside for shares this yr and a restoration in 2026 , with the S & P 500 reaching 6,500 by the top of 2026. Nonetheless, the trail from right here will probably be uneven and can doubtless embody a 5% to 10% pullback on account of a number of headwinds this summer time, based on the agency. “There’s quite a lot of information occasions and fairly materials market-moving information occasions that each one are going to converge within the months of July and August,” mentioned Darrell Cronk, president of Wells Fargo Funding Institute and chief funding officer for Wells Fargo’s wealth and administration division. “That is going to result in, no pun meant, some fireworks that we expect markets are going to should digest.” Notably, the pause on most of President Donald Trump’s reciprocal tariffs is because of expire in July, with China’s pause lifting in August. As well as, Trump has mentioned he needs his ” massive, stunning invoice ” of tax cuts on his desk by July 1. The laws, which the Congressional Finances Workplace estimates will add $2.4 trillion to the deficit ovet the following 10 years, was handed by the Home final month and is now earlier than the Senate. Discovering earnings To generate money circulate, Wells Fargo prefers intermediate-term mounted earnings belongings, since short- and long-term bonds may very well be harm by each future Federal Reserve financial coverage in addition to fiscal coverage, McMillion mentioned. “Because the yields on shorter maturities could fall quicker than on longer maturities, we consider one of the best alternatives are within the intermediate house (five- to seven-year maturities), providing enticing earnings and exposing buyers to much less volatility than longer-dated maturities,” she wrote within the outlook. One space the financial institution likes is investment-grade company bonds. For instance, iShares 5-10 12 months Funding Grade Company Bond ETF has a 30-day SEC yield of 5.32% and an expense ratio of 0.04%. Inside investment-grade corporates, it favors telecom issuers, financials and utilities. Wells Fargo additionally likes residential mortgage-backed securities and asset-backed securities. Municipal bonds additionally current an excellent alternative for buyers, notably common obligation bonds and important service income bonds, mentioned Brian Rehling, head of world mounted earnings technique. VTEB YTD mountain Vanguard Tax-Exempt Bond ETF yr to this point For one, yields are enticing, particularly when their tax benefit is taken into consideration. Earnings on munis is freed from federal tax and, if the bondholder lives in the identical state the place the bond was issued, exempt from state tax, too. For instance, the Bloomberg Municipal bond index at present yields 4.05%. Assuming the very best tax-bracket of 37%, that means a taxable equal yield of about 6.43%, Wells Fargo mentioned. Plus, whereas there was some concern that the muni tax exemption may very well be eradicated or in the reduction of as Congress seems to be for tactics to offset the Trump administration’s proposed tax cuts, Wells Fargo believes that’s “terribly unlikely.” “[It] truly presents a chance for buyers to get in at just a little bit extra enticing valuations,” Rehling mentioned. Diversifying past bonds Traders can also think about diversifying into different asset lessons, like dividend shares in a few of the sectors Wells Fargo favors, McMillion mentioned. Wells Fargo’s most advisable fairness sector is vitality, which tends to pay quite a lot of earnings. As an example, the Power Choose Sector SPDR Fund has a 30-day SEC yield of three.31% and an expense ratio of 0.08%. Among the many different sectors the agency is favorable on are utilities and financials, which additionally pay excessive dividends. XLE YTD mountain Power Choose Sector SPDR Fund yr to this point Inside vitality and utilities, midstream vitality, electrical utilities and impartial energy and renewable electrical producers “can profit from sturdy basic positioning whereas leveraging secular development in energy demand,” Wells Fargo mentioned in its outlook. “The leaders in these industries personal and function a few of the most difficult-to-replicate belongings on the planet, together with lengthy interstate pipelines and nuclear energy crops,” Wells Fargo mentioned. “These firms would not have significant direct publicity to commodity costs, however somewhat, profit from the long-term development in vitality demand from information facilities, electrification and reshoring of particular industries.” Lastly, direct lending, a subset of personal debt, presents probably the most enticing yields and is usually a great way so as to add earnings for certified buyers who meet monetary thresholds, McMillion mentioned. The yield on the Cliffwater Direct Lending Index , an asset-weighted index of roughly 14,800 instantly originated middle-market loans, was 11% as of December 31, 2024, she famous.