The US Standard & Poor's 500 index rose more than 20 percent for the second year in a row, as investor enthusiasm about artificial intelligence fueled strong gains in giant technology stocks.
Despite the December sell-off, the basket of blue-chip stocks ended 2024 up 23.3 per cent, after a 24.2 per cent increase the previous year, marking its best two-year performance this century. The index has now achieved annual gains of more than 20 percent four times in the past six years.
This rise was led by stocks of major technology companies exposed to artificial intelligence. Shares of chipmaker Nvidia rose 172 percent over the year, while shares of Meta, which has bet big on the emerging technology, rose 65 percent.
The performance of the S&P 500 contrasted with European markets, where the STOXX 600 rose 6 percent and the FTSE 100 rose 5.7 percent. The MSCI Asia-Pacific equity index rose 7.6 percent.
“The US (market) has rarely been this exceptional,” said Michael Metcalf, head of macro strategy at State Global Markets.
Wall Street stocks also rose on the Federal Reserve cutting interest rates for the first time since the coronavirus pandemic and resilient economic data that reassured investors that the United States is headed for a soft landing. Expectations of tax cuts and looser regulation during Trump's second term have also fueled gains in recent months.
Benjamin Bowler, a strategist at Bank of America, said Trump's “laissez-faire economics, tax cuts and deregulation”, coupled with a potential “artificial intelligence revolution”, mean the rally is likely to continue until 2025. Although 2024 was undoubtedly a “good year” for the United States. The US stock market “may be just the beginning,” he said.
But Chris Jeffrey, head of macro at the $1.4tn Legal & General Investments Asset Manager, said there were “quite a few red flags that should make us a bit cautious”.
The difference between forward price-earnings ratios in US and European stocks can only be justified if “you think the last 10 years (of US technology-driven earnings growth) can continue, and continue, for an awfully long time”. He added.
Investors were also forced to retreat from their expectations of interest rate cuts over the next year. With inflation remaining above target, projections from the Federal Reserve indicate that interest rates will fall in 2025 by less than previously hoped, leading to the S&P 500's worst session in four months in early December. This dampened investor enthusiasm after Trump's election victory in November, and helped push the index down 2.5 per cent in December.
Megacap technology stocks, including the so-called “Magnificent Seven” – Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla – were once again the dominant force in the US market.
Bullish advocates argue that Big Tech's earnings growth and the potential for artificial intelligence to stimulate productivity justify valuations.
If revenues don't collapse, Magnificent Seven will still be very popular in 2025 because of the outsized returns it has generated in the past, said Mike Zygmunt, co-head of trading and research at Visdom Investment Group. “Investors are just looking for them,” he said.
But its gains have prompted pessimistic commentators to draw comparisons between today's top-heavy market and the tech bubble that burst spectacularly at the turn of the millennium.
In contrast to the technology sector's gains, industrial materials companies were among the worst performers on the S&P 500 in 2024, as China's economic difficulties and fears of a U.S. recession that has yet to materialize dampened investor appetite.
Bouts of volatility briefly halted the S&P 500's rise. In addition to the December fall, stocks It sold sharply In early August, with declines extending beyond the technology sector.
However, at the beginning of last December, asset managers' net long-term exposure to the S&P 500 rose to the highest level in more than 20 years, according to Bank of America's monthly survey of global fund managers, indicating ” Very bullish sentiment.” Meanwhile, individual investors' enthusiasm for stock market gains over the coming year has never been higher, according to Deutsche Bank.
However, the closely watched US economic surprise index has declined in recent weeks, suggesting that economic momentum is trending weaker than expected. Some analysts say that slow growth in the amount of money circulating in the US economy, rising Treasury yields, and a strong dollar all point to a possible economic contraction in 2025.
Their investors Sell technology stocks In recent days, the Russell 2000 index of small stocks has fallen further from its November high. The equal-weighted Standard & Poor's 500 Index, which gives a weight of 0.2 percent to each component, fell by 6.6 percent over the past month.
Concentration of returns in big technology companies will remain a “painful trade” for investment funds that can only hold so much of any one stock, said Charlie McElligott, a strategist at Nomura Bank.
He added that investors “can't own enough” of the biggest names.
