Technology, consumer discretionary and financials.
Those are the three sectors Wells Fargo Investment Institute's Scott Wren is watching for the rest of 2019 as he reconsiders his firm's positions in the U.S. stock market.
"For a number of years, we had leaned hard towards stocks, and within stocks and large caps, really, we had leaned hard towards the cyclical sectors" like industrials, the firm's senior global equity strategist told CNBC's "Trading Nation" on Wednesday.
But in the last six to seven months — a volatile trading period during which stocks reached and retreated from all-time highs — Wren said his team has "backed off of" that strategy in the interest of mitigating risk.
"In other words, we've raised a little bit of cash, we've moved some money from these very cyclical sectors like industrials into more defensive sectors, things like [consumer] staples," he said. "What we've tried to do at this level or near this level is to reduce risk in these portfolios."
As of now, the strategist said his branch's investment portfolio is underweight small-cap stocks, which are largely tracked by the Russell 2000 index, and is leaning toward technology, consumer discretionary and financial names.
"We just really don't want to be swinging for the fences, just betting the farm on this thing that we're going to get a trade deal," Wren said. That's especially important to keep in mind as the U.S.-China trade war keeps a lid on U.S. equities, he added.
"I think it's going to be hard to make and sustain new highs unless we hear some positive things on trade," he said, adding that he doesn't see a "solid deal" in the cards until 2020.
"In our minds, you don't need a perfect deal at all. What you need is some kind of deal [that] takes the tariffs away [and] promises to not add more," which would encourage companies to boost capital spending, in turn breathing life into the stock market and the domestic economy, Wren said.
It will also help the earnings picture as Wall Street gears up for its next earnings season beginning on Oct. 15, he said.
"I don't think the market's asking for a whole lot. It's just that we don't want to see — and there would certainly be some market downside if — the trade talks fall apart," Wren said. "That's not what the market wants to hear."
Stocks ended the day higher on Wednesday after President Donald Trump said the U.S. and China were closing in on a trade deal faster than expected and the White House released its official notes from the president's phone call with the president of Ukraine.