US stocks are up more than 20% for the second year in a row

The US S&P 500 index rose more than 20 percent for the second year in a row, as investor excitement about artificial intelligence fueled strong gains in megacap technology stocks.

Despite being traded in December, the basket of blue-chip stocks ended 2024 up 23.3%, after a 24.2 percent gain last year, marking its best performance in two years this century. The index has had annual gains of more than 20 percent four times in the past six years.

The conference is led by major tech companies exposed to AI. Shares in chipmaker Nvidia are up 172 percent over the year, while Meta, which is also betting heavily on nascent technology, is up 65 percent.

The performance of the S&P 500 contrasted with European markets, with the Stoxx 600 gaining 6 percent and the FTSE 100 rising 5.7 percent. MSCI’s index of Asia Pacific stocks rose 7.6 percent.

“The US (market) is rarely that unique,” said Michael Metcalfe, head of senior strategy at State Global Markets.

Wall Street stocks were also lifted by the Federal Reserve’s reduction in interest rates for the first time since the coronavirus pandemic and strong economic data that reassured investors that the US is headed for a soft spot. Expectations of tax cuts and deregulation during Trump’s second term have also boosted gains in recent months.

Bank of America strategist Benjamin Bowler said laissez-faire economics, tax cuts and deregulation, as well as a potential AI revolution, meant the rally would continue. until 2025. Although 2024 was undoubtedly a “good year” for the US stock market, “it may just be the beginning,” he said.

But Chris Jeffrey, head of macro at $1.4tn-in-asset manager Legal & General Investment Management, said there were “a number of red flags that should make us cautious”.

The difference between forward earnings ratios for US and European stocks can only be justified if you “believe that the last 10 years (of US technology-driven earnings growth) can continue , and continued for a very long time”, he added.

Investors also have to scale back their expectations of rate cuts next year. With inflation still above target, forecasts released by the Fed suggest that interest rates will fall in 2025 by less than expected which led to the S&P 500’s worst rally ever in the four months at the beginning of December. That dampened investor enthusiasm after Trump’s election win in November, and helped push the index down 2.5 percent in December.

Megacap tech stocks that include the so-called “Magnificent Seven” – Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla – were also the main force in the US market.

Bulls argue that big tech’s wage growth and AI’s ability to boost productivity justify the valuations.

Mike Zigmont, head of business and research at Visdom Investment Group, said that, despite the decline in revenue, the Magnificent Seven will remain popular in 2025 due to the large earnings they have made in the past. “Investors just want them,” he said.

But their success has prompted bearish commentators to draw comparisons between today’s bearish market and the tech bubble that burst spectacularly at the turn of the millennium.

In contrast to the tech sector’s gains, industrial goods companies were among the S&P 500’s worst performers in 2024 as a slowing Chinese economy and fears of a US recession which will generate the desire of the bankrupt investors.

The volatility disrupted the S&P 500’s otherwise volatile uptrend. In addition to the fall of December, stocks best seller in early August, with the fall going beyond the technology sector.

However, in early December, asset managers’ long exposure to the S&P 500 rose to their highest level in 20 years, according to Bank of America’s monthly survey of fund managers. of the world, which shows “strange feelings”. Meanwhile, retail investors’ enthusiasm for stock market gains next year had never been higher, according to Deutsche Bank.

However, Citi’s closely watched index of the US economy has fallen in recent weeks, indicating that economic conditions are still weaker than expected. Some analysts say the sluggish growth of money circulating in the US economy, high Treasury yields and a strong dollar, all point to a deep recession by 2025.

Investors have sold technology equipment In recent days, the Russell 2000 index of small-cap stocks has fallen further from its November record high. The S&P 500 index, which assigns a weighting of 0.2 percent to each share, has shed 6.6 percent in the past month.

The start of profits in big tech will remain a “sad business” for investment funds that can hold only one figure, said Charlie McElligott, a strategist at Nomura.

Investors “won’t have enough money” for the biggest names, he added.