US stocks are on the verge of accomplishing a feat so uncommon that it has occurred only a few times.
The S&P 500 is expected to increase by more than 20% this year following a 24% rise in 2023. Consecutive increases exceeding 20% would mark the strongest performance for the benchmark index since 1997 and 1998, based on data from FactSet.
It’s a remarkable occurrence for the contemporary iteration of the index. (According to a Bank of America analysis, precursors also achieved that level of performance on three other occasions: in 1927 and 1928, 1935 and 1936, and in 1954 and 1955.)
Although losing momentum in December and forgoing an anticipated “Santa Claus rally” to finish 2024, markets achieved a remarkable year, extending a solid performance from 2023.
This year, Wall Street experienced notable gains as inflation moderated and consumer spending stayed robust, though the job market appeared stable yet decelerating. Investors were optimistic about robust earnings growth for technology firms, and stocks soared after President-elect Donald Trump’s reelection in November.
The prestigious Dow index increased by more than 12% this year, whereas the technology-focused Nasdaq index grew by over 31%.
The S&P 500 has increased nearly 60% in the last two years, following a disappointing 2022 in which the index dropped by 20%.
US markets have surpassed stocks in Europe and Asia throughout this year.
“Inflation is decreasing, cuts in interest rates are underway, and earnings are rising, all of which enhance sentiment and offer valuation support,” stated Terry Sandven, chief equity strategist at US Bank Wealth Management.
The agreement among major banks and research analysts seems to indicate sustained growth into 2025, supported by robust economic data, earnings expansion, and hopes for a business-friendly Trump administration. According to FactSet, analysts predict a 14.8% increase for the S&P 500 in 2025.
However, several analysts believe that stocks are now overpriced, and the uncertainty regarding the pace of forthcoming rate reductions by the Federal Reserve, along with potential geopolitical threats, might trigger a sell-off. Given the remarkable gains over the last two years, it is unclear if the bullish trend can be sustained.
“We think the likelihood of another successful year in 2025 is promising due to the strong possibility of economic expansion and a Federal Reserve that is expected to lower rates next year,” stated Jeffrey Buchbinder, chief equity strategist at LPL Financial, in a note dated December 30. “However, if renewed inflation removes the possibility of rate cuts or speculation becomes excessive, this bull market may struggle to survive the upcoming year.”
According to data from FactSet, December marked the poorest month since April for the S&P 500 and the Nasdaq, as declines in tech stocks pulled the indices downwards.
Certainly, it is unusual to observe three consecutive years of 20% increases in the stock market, as stated by Callie Cox, chief market strategist at Ritholtz Wealth Management.
“Everyone is anticipating a prosperous year ahead, which creates ample opportunity for letdowns,” Cox informed CNN.
The year in review for markets
In September, the Fed started lowering interest rates after maintaining them at their highest levels in decades since the summer of 2023. The pairing of the Fed starting to lower rates and robust economic growth signaled positive prospects for US stocks.
Easing inflation has lifted investor confidence, but following its last policy meeting of the year, the Fed indicated there will be fewer reductions in 2025 than earlier anticipated, which may weaken the market’s momentum next year.
S&P 500 index: US technology firms experienced an exceptional year, pushing the S&P 500 up over 20%.
The tech stock group known as the “Magnificent Seven” — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — has contributed to more than 50% of the S&P 500’s overall returns this year, based on information from S&P Dow Jones Indices.
Additionally, since November 5, the Mag Seven stocks have represented more than 96% of the S&P 500’s increases. Nvidia (NVDA) shares were a leading performer this year, rising more than 180%.
Although Big Tech shares increased profits, the overall stock market breadth has been weak. According to S&P Dow Jones Indices, most companies in the S&P 500 have decreased since November, although the index has benefited from the gains made by the Magnificent Seven.
Dow Jones Industrial Average: The Dow is poised to close over 12% higher for the year. On December 4, the blue-chip index reached an all-time high slightly over 45,000 points before dropping 5% this month.
The American semiconductor manufacturer Nvidia became a part of the Dow in November.
Nasdaq Composite: The Nasdaq is projected to conclude 2024 more than 31% elevated. The tech-focused index was the highlight among major indices and jumped due to investor confidence in technology and AI.
Palantir (PLTR), a data company centered on AI with its stock rising nearly 370% this year, became a Nasdaq member in December.
US Treasuries: The yield on the 10-year US Treasury note dropped to 4.539% on Monday, indicating anticipated future economic growth and inflation.
The yield for the 2-year Treasury note decreased to 4.252% on Monday.
The US dollar increased towards the year’s conclusion based on forecasts of economic expansion. The US dollar jumped following Trump’s reelection in November. The US dollar index, which evaluates the dollar in relation to a collection of other currencies, has increased by more than 6% throughout the year, based on information from FactSet.
Bitcoin fell on Monday, staying close to $92,000. The largest cryptocurrency in the world has experienced an unforgettable year, rising over 100% throughout 2024.
That’s a reversal of fortune from just two years prior, when bitcoin was valued under $17,000 after the crypto sector collapsed.
Bitcoin, known for its extreme volatility, surged this year as it gained broader acceptance due to Trump’s support for cryptocurrencies.
Trump has chosen Paul Atkins, a former SEC commissioner and supporter of cryptocurrency, to serve as chair of the SEC. Following Trump’s announcement of his selection, bitcoin exceeded $100,000 for the first time.
Gold experienced a remarkable year, increasing by over 26% and set to slightly surpass the S&P 500.
Investors frequently view gold as a secure refuge during economic instability and inflation. When the Fed lowers rates, gold may become more attractive than income-generating investments such as bonds.
Gold’s surge, however, was also fueled by the fact that central banks globally kept adding to their gold holdings.
Commodities: Which investment delivered the most unexpected returns this year? Cacao.
Cocoa futures on the New York market increased by nearly 200% throughout the year.
Cocoa futures prices surged dramatically as climate-related problems affected cocoa production in Ghana and the Ivory Coast, which account for more than 70% of worldwide cocoa output. The tightening of supply caused futures prices to surge.
Futures for coffee and orange juice also jumped this year because of unpredictable weather and grim forecasts for crops.
Futures contracts are typically bought and sold by institutional investors such as large banks or asset management companies, rather than by individual investors.
Source: CNN
