The S&P 500 has achieved a remarkable milestone, climbing more than 20% for the second consecutive year, propelled by widespread enthusiasm surrounding artificial intelligence and robust performances from mega-cap technology stocks.
Despite December’s market corrections, the blue-chip index concluded 2024 with a 23.3% increase, following a 24.2% gain in the previous year. This outstanding performance marks the strongest two-year run this century, with the index recording gains exceeding 20% four times in the past six years.
Technology giants heavily invested in AI led the charge, with chipmaker Nvidia’s shares surging an astonishing 172% throughout the year, whilst Meta experienced a 65% increase. The US market’s exceptional performance stands in stark contrast to European indices, with the Stoxx 600 and FTSE 100 posting modest gains of 6% and 5.7% respectively.
The rally received additional support from the Federal Reserve’s first interest rate cuts since the Covid-19 pandemic, coupled with resilient economic data suggesting a soft landing for the US economy. Market optimism has been further bolstered by expectations of tax cuts and reduced regulation during a potential second Trump presidency.
The ‘Magnificent Seven’ – Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla – continued their market dominance. Bulls argue that Big Tech’s earnings growth and AI’s potential productivity benefits justify current valuations, though some analysts draw concerning parallels to the dot-com bubble of the late 1990s.
Looking ahead to 2025, market watchers remain divided. While some forecast continued growth driven by technological innovation and potential policy shifts, others point to warning signs including weakening economic indicators and historically high valuations in the technology sector.
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