Shares are preparing for an action they haven't undertaken in close to three decades.
The S&P 500 is predicted to increase by over 20% in 2024, following a 24% rise in 2023. This would be the best performance for the index since 1997 and 1998, as per FactSet's data.
This is an exceptional occurrence for the current version of the index. The index also managed this type of performance three other times, specifically in 1927 and 1928, 1935 and 1936, and 1954 and 1955, according to Bank of America's analysis.
In spite of a decline in December and missing the anticipated "Santa Claus rally" to mark the end of 2024, markets still recorded an impressive year, building on a successful 2023.
Wall Street noted considerable returns this year due to a decrease in inflation and robust consumer spending, coupled with a steady yet slowing job market. Investors had a positive outlook on outstanding earnings growth for tech companies, leading to a surge in stocks post-November, following President-elect Donald Trump's reelection.
The Dow index rose beyond 12% this year, and the tech-dominated Nasdaq index jumped over 31%.
The S&P 500 has experienced an almost 60% growth in the past two years, a turnaround from its poor performance in 2022 where the index dropped by 20%.
US markets have outperformed European and Asian stock markets throughout this year.
"Inflation is decreasing, interest rate reductions are underway, and earnings are progressively climbing, all of which strengthen optimism and support valuation," Terry Sandven, US Bank Wealth Management's chief equity strategist, mentioned.
The forecast among major banks and research analysts suggests ongoing growth into 2025 due to robust economic data, earnings growth, and expectations of a pro-business Trump administration. Analysts expect the S&P 500 to gain by 14.8% in 2025, as per FactSet.
However, some analysts seem to consider stocks overpriced at the moment, and uncertainty over the speed of future interest rate cuts from the Federal Reserve, as well as looming geopolitical threats, could initiate a selloff. Given the significant gains in the past two years, it's unclear if the bull market can endure.
"We believe the chances of another successful year in 2025 are promising given the high probability of economic growth and a Fed that is likely to reduce interest rates next year," Jeffrey Buchbinder, LPL Financial's chief equity strategist, said in a note on December 30. "However, if resurgent inflation puts rate reductions out of reach or speculation gets out of hand, this bull market could encounter challenges in the next year."
December proved to be the worst since April for the S&P 500 and the Nasdaq, as selloffs in tech stocks negatively impacted the indices.
Indeed, it's not common to see three consecutive years of 20% gains in the stock market, according to Callie Cox, Ritholtz Wealth Management's chief market strategist.
"Everybody's expecting a good year next year, and that leaves plenty of room for disappointment," Cox stated to CNN.
Market Review for the Year
The Fed began decreasing interest rates in September following maintaining them at historically high levels since the summer of 2023. The combination of the Fed's rate reductions and strong economic growth showed positive prospects for US equities.
Decreasing inflation increased investor confidence, but after its final meeting of the year, the Fed indicated fewer cuts in 2025 than initially anticipated, which could diminish the market's momentum throughout the next year.
S&P 500 index: US tech companies had a remarkable year and boosted the S&P 500 over 20%.
The "Magnificent Seven" of tech stocks — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — accounted for more than 50% of the S&P 500's total returns in 2024, according to S&P Dow Jones Indices.
Since November 5, the "Mag Seven" stocks have accounted for over 96% of the S&P 500's gains. Nvidia (NVDA) stock was a standout performer in 2024, increasing by over 180%.
Although Big Tech stocks aided gains, stock market breadth has been poor. Most companies in the S&P 500 have fallen since November, while the index has been bolstered by the Magnificent Seven's gains, according to S&P Dow Jones Indices.
Dow Jones Industrial Average: The Dow is predicted to finish more than 12% higher for the year. The blue-chip index peaked at a record just above 45,000 points on December 4 before losing 5% this month.
American chipmaker Nvidia joined the Dow in November.
Nasdaq Composite: The Nasdaq is set to finish 2024 over 31% higher. The tech-heavy index was the star of the major indices and surged on investor confidence in tech and AI.
Palantir (PLTR), an AI-focused data company whose stock has increased almost 370% this year, joined the Nasdaq in December.
US Treasuries: The yield on the 10-year US Treasury note declined to 4.539% on Monday, indicating anticipation of future economic growth and inflation.
The yield on the 2-year Treasury note declined to 4.252% on Monday.
The US dollar rose near the year's end due to expectations of economic growth. The US dollar surged after Trump's reelection in November. The US dollar index, which measures the dollar against a basket of other currencies, is up over 6% throughout the year, as per data from FactSet.
Cryptocurrency dipped on Monday, hovering around $92,000. The leading digital asset, Bitcoin, has had an extraordinary year, soaring over 100% in 2024.
This is quite a switch from just two years ago, when Bitcoin was trading below $17,000, following the collapse of the crypto market.
Bitcoin, known for its volatility, bounced back this year, gaining popularity as it continued to gain mainstream traction, boosted by Trump's endorsement of cryptocurrencies.
Trump announced his appointment of Paul Atkins, a former SEC commissioner and a crypto supporter, as chair of the SEC. Following this announcement, Bitcoin surpassed $100,000 for the first time.
Gold also had an impressive year, rising by more than 26% and expected to narrowly surpass the S&P 500.
Investors often view gold as a secure haven in times of economic instability and inflation. When the Fed lowers interest rates, gold can become more attractive than income-generating assets like bonds.
Gold's rise, however, was also fueled by central banks worldwide increasing their gold holdings.
Commodities: Which commodity saw the most unexpected gains this year? Cocoa.
Cocoa futures on the New York exchange skyrocketed nearly 200% this year.
Futures prices for cocoa soared due to climate issues impacting cocoa harvest in Ghana and the Ivory Coast, where over 70% of global cocoa production takes place. The supply crunch drove futures prices up significantly.
Futures for coffee and orange juice also rose this year as a result of erratic weather and poor prospects for harvests.
Futures contracts are typically traded by institutional investors, such as large banks or asset management firms, rather than individual investors.
CNN's Elisabeth Buchwald and Matt Egan contributed to the report.
In light of the impressive performance of the S&P 500, investors are considering the potential for further gains in the business world, with some strategists predicting a 14.8% increase in 2025. This boost in expectations is mainly due to the robust current economic data, earnings growth, and the prospect of a pro-business administration.
Given the significant growth in the S&P 500 in the past two years, with tech companies playing a crucial role, many investors are actively looking for opportunities in this sector. In 2024, businesses like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla collectively contributed over 50% of the S&P 500's total returns, highlighting the potential for further gains in the investing landscape.
