After 26 years, the S&P 500 has once again recorded two consecutive years of gains exceeding 20%. Wall Street is optimistic about the U.S. stock market in 2025, but the momentum is expected to weaken
The S&P 500 Index achieved a 23.3% increase in 2024, marking the first time since 1997-1998 that it has recorded annual gains exceeding 20% for two consecutive years. This bull market began in October 2022, driven by factors such as the Federal Reserve's interest rate cuts, the artificial intelligence boom, and Trump's election victory. Although the outlook for U.S. stocks in 2024 is optimistic, market momentum is expected to weaken. Key economic indicators such as changes in inflation and the job market will influence future monetary policy
The Zhitong Finance APP noted that the S&P 500 index rose by as much as 23.3% in 2024, closing at 5,881.62 points, with gains in nine out of twelve months. Its corresponding SPDR S&P 500 Trust ETF also saw a 23.3% increase this year.
This benchmark index has recorded its first consecutive annual gains exceeding 20% since 1997-1998, highlighting the extraordinary strength of the current bull market on Wall Street that began in October 2022. The rise this year has been driven by multiple factors, the most significant being the Federal Reserve finally starting its interest rate cut cycle, the AI (Artificial Intelligence) boom driving tech stocks higher, and the divisive victory of former U.S. President Donald Trump in the elections.
2024 Headlines: Economic Data, Federal Reserve, Technology, and Artificial Intelligence
It is safe to say that this has been a brilliant year for the U.S. stock market. Economic data and the Federal Reserve dominated the headlines, with market participants eagerly monitoring key indicators such as inflation, the job market, and economic growth, analyzing their impact on monetary policy.
The rampant inflation of 2022 has eased in 2023, and this trend has largely continued into 2024. Significant progress was made in the first half of this year, with the core Personal Consumption Expenditures (PCE) price index (the Fed's preferred inflation gauge) nearing the Fed's 2% target. However, the PCE deflator subsequently showed a sideways trend towards the end of the year.
Meanwhile, the job market finally began to cool this year, with Federal Reserve Chairman Jerome Powell noting that the current labor market conditions are more relaxed than before the COVID-19 pandemic.
Nonetheless, the patterns of inflation and the labor market were sufficient to prompt the Federal Reserve to cut interest rates for the first time since the pandemic began. The Fed made a significant rate cut of 50 basis points in September, followed by two additional cuts of 25 basis points each in November and December.
As data also indicated strong momentum in the U.S. economy and the Fed appeared to have control over monetary policy, hopes for a soft landing in 2024 surged, further fueling the rise on Wall Street.
Another major development in 2024 was the continued surge in tech stocks driven by the AI boom. Perhaps no company benefited more than NVIDIA (NVDA.US). This chip manufacturer solidified its position as a leader in the AI chip market in 2024, with its stock price achieving an astonishing increase of about 178%, which also inflated its market capitalization, making it one of the largest publicly traded companies in the world.
Several other tech giants among the seven largest also achieved substantial annual gains. Microsoft (MSFT.US) rose nearly 13%, Apple (AAPL.US) increased by about 31%, Alphabet (GOOGL.US) rose by 37%, Amazon (AMZN.US) increased by 46%, and Meta Platforms (META.US) and Tesla (TSLA.US) rose by 67% respectively Traders in 2024 are still concerned about the huge valuations of tech stocks and their excessive role in supporting market breadth.
However, Truist Co-Chief Investment Officer Keith Lerner believes that the tech sector is far from a bubble, with strong earnings momentum.
Geopolitical and Trump Impact
In 2024, geopolitics also influenced the market. Ongoing conflicts in the Middle East and no signs of resolution in the Russia-Ukraine conflict have impacted oil prices throughout the year.
But for Wall Street, no political event is more significant than Trump's election victory in November. Since the former president announced his victory on election day, the S&P 500 index has risen more than 7% by the end of the year, as expectations grew that Trump's second administration would boost the economy and financial markets through deregulation, tariffs, and tax cuts.
Outlook for the Future
Many in the investment community believe that the stock market will continue to rise next year, but it will not reach the levels of 2023 and 2024. Analysts point out that there are also adverse factors, such as the Federal Reserve signaling a slowdown in interest rate cuts and the uncertainty surrounding the full impact of Trump's policies.
Lerner from Truist stated in a research report on the outlook for 2025 earlier this month: "We expect the stock market bull market (lagging behind typical upcycles in both price and duration) to be sustained through ongoing economic expansion, which will enhance corporate profits, ease monetary policy, and continue to provide fiscal support."
"These positive factors are partially offset by rising market valuations and investor optimism, indicating that the threshold for positive surprises has been raised. These factors, along with broader policy outcomes, suggest that this year's trends will be more bumpy compared to the past year. Investors should seek to capitalize on opportunities that may arise in a sustained upward trend," Lerner added.
As 2025 approaches, one thing is certain—the overall outlook is optimistic and full of anticipation