Chart of the Week

Looking back on 2024, U.S. economic growth once again surprised to the upside while overseas economies saw another challenging year. The chart above illustrates this dichotomy, showing that a broad measure of economic activity in the U.S. was firmly in expansionary territory throughout 2024. Elsewhere, recent stimulus initiatives helped stabilize China’s economy into year-end while the eurozone remained weighed down by a weak manufacturing sector.

Turning ahead to 2025, we expect the U.S. to sustain its leading-edge role in global growth, supporting our preferred tilt toward U.S. assets in diversified portfolios. We believe the U.S. economy and markets will continue to outperform the rest of the world due to relatively stronger demographics, more potent fiscal stimulus, less regulation, and a more dynamic technology sector fueling greater investment spending growth.

We favor Communication Services, Energy, Financials, and Industrials, and, more generally, cyclical and growth-oriented sectors over defensive stocks. Meanwhile, our preference in fixed income is to consider adding intermediate (3 – 7 years) and longer maturities as yields rise. Lastly, we still believe exposure to a broad basket of commodities is prudent and can serve as a hedge against inflation as tight supply-demand conditions support price gains in 2025.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation, and other risks. Prices tend to be inversely affected by changes in interest rates. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility.

Purchasing Managers’ Indexes (PMIs) track sentiment among purchasing managers at manufacturing, construction, and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc.

An index is unmanaged and not available for direct investment.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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