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US markets concluded an extraordinary 2024, achieving a rare milestone that has only been attained a handful of times in the stock market’s history.
Despite a downturn on the final trading day of the year, marked by a decline in the Dow Jones Industrial Average of over 2,000 points (around 5%) and a 2.5% drop in the S&P 500, the overall performance of US stocks was impressive throughout the year.
The S&P 500 surged by more than 23% in 2024, building on a 24% increase in 2023. This consecutive achievement of over 20% gains is the strongest showing for the index since 1997 and 1998, based on data from FactSet. Such consistent high performance is notable, as similar trends occurred only three times earlier: in 1927-1928, 1935-1936, and 1954-1955, according to an analysis by Bank of America.
This strong market performance is likely providing a boost to retirement savings. Many retirement accounts, such as 401(k)s and pension funds, often invest in indices like the S&P 500, meaning that significant stock market gains translate directly into increased account balances for investors.
Despite the lackluster conclusion of December and the absence of the anticipated “Santa Claus rally,” the markets enjoyed robust growth throughout the year, a continuation of the strong momentum seen in 2023.
Wall Street experienced considerable returns, driven by easing inflation rates, resilient consumer spending, and a stable, though slightly slowing, job market. Investor confidence was bolstered by strong earnings from technology firms, particularly following President-elect Donald Trump’s reelection in November, which further energized the market.
The Dow Jones saw an increase of 12.9% over the year, while the tech-centric Nasdaq Composite skyrocketed by 28.6%.
Overall, the S&P 500 has jumped nearly 53% over the past two years, recovering from a rough 2022 that resulted in a 20% decline in the index.
US markets outpaced stock markets in both Europe and Asia during the year.
Terry Sandven, chief equity strategist at US Bank Wealth Management, noted, “With inflation subsiding, interest-rate cuts on the horizon, and rising earnings, investor sentiment is buoyed and market valuations appear supported.”
The outlook for 2025 remains optimistic among major banks and analysts, who predict continued growth driven by strong economic indicators and earnings as well as an anticipated business-friendly environment under Trump’s administration. Analysts forecast that the S&P 500 could see an increase of 14.8% in 2025, according to FactSet.
However, some experts warn that current stock valuations may be unsustainable. Concerns about the Federal Reserve’s approach to interest rate cuts, along with potential geopolitical risks, could trigger market corrections. Given the substantial gains observed in the stock market over the past two years, the longevity of the current bull market remains uncertain.
“We find the prospects for another positive year in 2025 to be strong, considering the likelihood of economic expansion and anticipated Fed rate reductions,” stated Jeffrey Buchbinder, chief equity strategist at LPL Financial, in a December 30 note. “However, if inflation resurges or speculative behavior escalates, this bull market could face significant challenges.”
In December, the S&P 500 and Nasdaq experienced their worst month since April, largely due to selloffs in tech stocks that negatively impacted the indexes.
Notably, three consecutive years of 20% gains in the stock market are uncommon, as remarked by Callie Cox, chief market strategist at Ritholtz Wealth Management. “Expectations for a strong year in 2025 are high, which creates a potential for disappointment,” she cautioned.
The Federal Reserve instigated interest rate cuts in September, having maintained them at high levels since summer 2023. The dual impact of rate reductions and solid economic growth thus far has painted a favorable picture for US equities.
As inflation trends down, investor sentiment has improved, yet after the year’s final meeting, the Fed suggested that fewer rate cuts might occur in 2025 than initially anticipated, which could hinder the market’s drive.
S&P 500 index: US technology firms played a pivotal role in the S&P 500’s 23.3% growth this past year.
The leading tech stocks, referred to as the “Magnificent Seven” — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — have collectively contributed more than half of the S&P 500’s total gains this year, per S&P Dow Jones Indices data.
From November 5 onward, these stocks accounted for an astonishing 96% of the index’s gains, with Nvidia (NVDA) standing out with a remarkable 179% stock price increase this year.
However, despite these impressive figures, the overall breadth of the stock market has been weak, as the majority of S&P 500 companies have seen declines since November, with the index buoyed primarily by the performance of the Magnificent Seven.
Dow Jones Industrial Average: The Dow recorded a 12.9% gain for the year, reaching an all-time high just above 45,000 points on December 4, before facing a 5% decline in December.
Nvidia, known as a leader in chip technology, was added to the Dow in November.
Nasdaq Composite: The Nasdaq led the major indices with a 28.6% increase for the year, fueled by investor confidence in the technology sector and advancements in AI.
Palantir (PLTR), an AI-focused data company, saw its stock soar nearly 340% this year and joined the Nasdaq index in December.
US Treasuries: The yield on the 10-year US Treasury note settled at 4.57% on the last day of trading, marking a rise of over 15% throughout 2024, reflecting expectations for economic growth and inflationary pressures.
Meanwhile, the yield on the 2-year Treasury note fell to 4.232% on Tuesday.
US dollar: Toward the year’s end, the US dollar appreciated on expectations of economic growth. It surged following Trump’s reelection in November, with the US dollar index, which compares the dollar against a diverse basket of foreign currencies, increasing by over 7.1% for the year.
Bitcoin: As of Tuesday afternoon, Bitcoin’s price dipped to $93,400, down almost 4% for the month. The leading cryptocurrency has enjoyed a banner year, climbing nearly 120% overall in 2024.
This marks a significant recovery from two years prior when Bitcoin’s value plummeted below $17,000 during the cryptocurrency industry’s significant downturn.
Bitcoin, known for its volatility, experienced a resurgence this year, gaining traction as it garnered broader acceptance, particularly under Trump’s favorable stance toward cryptocurrencies.
Trump has appointed Paul Atkins, a former SEC commissioner and advocate for cryptocurrencies, as the new chair of the SEC. Following this announcement, Bitcoin briefly surpassed $100,000 for the first time.
Gold: This precious metal also experienced a strong year, increasing by 27% and outperforming the S&P 500. Investors often view gold as a protective asset during economic instability and inflationary periods. As the Fed lowers rates, gold can appear more attractive than yield-based investments like bonds.
Gold’s price surge has also been influenced by central banks worldwide continuing to expand their gold reserves.
Commodities: Among the year’s most unexpected returns was from cocoa, which saw futures pricing on the New York exchange rise by more than 168% in 2024.
This dramatic increase was driven largely by climate disruptions that impacted cocoa harvests in key producing countries like Ghana and Ivory Coast, where approximately 70% of the world’s cocoa is cultivated. The resultant supply squeeze led to soaring prices.
Futures for other commodities, such as coffee and orange juice, also rose sharply due to adverse climate conditions and negative forecasts for harvest quantities.
Generally, futures contracts are primarily traded by institutional investors including major banks and asset management firms, rather than individual investors.
Source
finance.yahoo.com