Wells Fargo Investment Institute Indicates U.S. Poised to Lead Global Economy in 2025

Wells Fargo Investment Institute (WFII) released its “ 2025 Outlook: Charting the Economy’s Next Chapter.” WFII’s global economic outlook is that the U.S. economy’s continued expansion will lead the world economy. As well, the U.S. stock market rally will broaden, with earnings being the primary driver of prices across equity asset classes.

WFII expects equity market leadership breadth to continue to widen, including extended participation by more cyclically oriented areas of the market, such as small-cap equities and the Financials, Communication Services, Industrials, and Energy sectors of the S&P 500 Index.

“We continue to believe that equity markets look attractive for 2025, with broader sector leadership and participation, thanks to improving fundamentals and a policy tailwind,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “The incoming administration and congressional leaders want a fast start, with likely policy priorities including extending tax benefits, deregulation, tariffs, and tighter border control. We expect that these policies will support our guidance.”

Outlook on global economy and asset groups:

• Global economy: We believe the U.S. economy will lead the global economy, as economic recoveries in Europe, China, and emerging markets face significant headwinds.
• Global equities: We expect returns to be driven mainly by earnings growth, but valuations should remain supportive.
• Global fixed income: Short-term U.S. Treasury rates likely will fall with the Federal Reserve policy rate, but longer-term rates should rise with economic growth, tariffs, and immigration restrictions.
• Global real assets: We believe commodities are well-positioned to benefit from slow supply growth and a global demand rebound that is driven by a modest international economic recovery and lower global interest rates.
• Global alternative investments: Global alternative investments are likely to benefit from a pickup in merger and acquisition activity, lower cost of borrowing, and increasing confidence that economic growth is sustainable.

Top portfolio ideas:

1. Prepare for abundant liquidity to diversify investment opportunities
2. Position for a cyclical recovery but remain tilted toward U.S. assets
3. Rethink investment income
4. Consider expanding opportunities in artificial intelligence
5. Keep extreme risks in perspective

Highlights of WFII’s forecast:

• The anticipated U.S. GDP (gross domestic product) growth target for 2025 year-end is 2.5%.
• The target for U.S. consumer price inflation in 2025 is 3.3%.
• The S&P 500 Index price target range is 6,500 – 6,700 for year-end 2025.
• The Federal funds rate forecast for 2025 is 4.00% – 4.25%, with 10- and 30-year U.S. Treasury yield forecasts of 4.50%-5.00% and 4.75%-5.25%, respectively.

The full report provides guidance for investors to help navigate the next 12 months, long-term themes that WFII believes are investable now, a closer look on sector and sub-sector preferences, as well as U.S. and international political risks that could impact investment returns. Please see the full report for detailed information.