• Wells Fargo Investment Institute raises its 2025 US GDP growth forecast to 2.0%, a significant upward revision from its previous projection of 1.3%.
  • The more optimistic outlook is driven by expected outperformance in key sectors, including financials, technology, aerospace/defense, energy, and utilities.
  • The revision comes despite persistent headwinds from geopolitical uncertainty, tariff shocks, and inflation pressures that are forecast to keep CPI at 3.5% by year-end.

In a notable shift, strategists at Wells Fargo Investment Institute have upgraded their projection for US economic growth next year, signaling a greater degree of confidence in the economy's underlying resilience. The revised forecast of 2.0% growth for 2025, up from 1.3%, suggests that certain sectors are positioned to power through ongoing macroeconomic challenges.

The upward revision is particularly striking as it runs counter to persistently low consumer and corporate confidence levels. According to the institute's analysis, this resilience is largely attributable to robust corporate earnings, which have shown surprising strength. The first quarter of 2025 is being described internally as one of the best earnings seasons since 1992, creating a fundamental disconnect between market performance and sentiment.

A sector-specific rotation is at the heart of the upgraded forecast. The financial sector, a key area for Wells Fargo, is expected to benefit directly from elevated borrowing costs and strong loan growth driven by a steeper yield curve. This outlook for banks is a cornerstone of the more positive GDP view. Beyond financials, the institute is advising investors to focus on large and mid-cap equities within technology, aerospace/defense, and energy/utilities—sectors seen as having the pricing power and structural positioning to manage tariff and inflation pressures effectively.

“Our optimism is focused on robust performance in select sectors where pricing power and sector-specific strengths persist,” a person familiar with the institute’s thinking said, noting that these areas act as natural hedges against ongoing risks.

Those risks remain substantial. The forecast incorporates a universal 10% base tariff against all trading partners, which is seen as a significant drag on growth. Furthermore, inflation is not expected to retreat swiftly, with CPI forecasted to rise to 3.5% by the end of 2025 before easing to 2.6% in 2026. The labor market is also projected to soften, with unemployment rising to 4.8% by the end of next year.

Despite these headwinds, the institute's model suggests the US will avoid a full recession, extending an unusual cycle of economic resilience that has persisted since the 2008-2009 financial crisis. The accompanying S&P 500 year-end target is set at 6,100, roughly 2% from recent all-time highs, with volatility expected to continue through the remainder of the year.

This forecast update from a major bank-owned institute mirrors a cautious optimism beginning to emerge elsewhere on Wall Street, pointing to modest growth fueled by sector rotation rather than a broad-based boom. Efforts to reach Wells Fargo spokespeople for additional comment were not immediately successful.

Correction: An earlier version of this article misstated the previous GDP forecast. It was 1.3%, not 1.0%