The US stock market is on track for its strongest performance in years, with the S&P 500 up approximately 27% in 2024, surpassing last year’s 24% gain and marking the benchmark index’s best year since 2019. The rally has exceeded Wall Street’s expectations, with the index notching more than 50 daily closing highs and reaching a record peak of 6,047 on Monday.
Heading into 2024, even the most bullish forecaster, Ed Yardeni of Yardeni Research, only predicted a 17% surge with his 5,400 price target, while most strategists expected just 8% growth to around 5,000. The dramatic outperformance forced analysts to repeatedly revise their targets upward throughout the year.
Several key factors drove this exceptional performance. The US economy demonstrated robust health with nearly 3% GDP growth, record employment numbers, solid retail sales, and declining inflation approaching the Federal Reserve’s 2% target. Corporate earnings are on track to hit new records as measured by S&P 500 earnings per share.
The Federal Reserve’s pivot to cutting interest rates provided significant tailwinds, with 75 basis points in cuts delivered so far and another 25-basis-point reduction expected this month. Lower rates typically boost stock prices by improving corporate profits and valuation dynamics.
Donald Trump’s clear victory in the presidential election removed uncertainty, with the market rallying on expectations of business-friendly policies including lower taxes and deregulation. November saw the year’s best monthly gains, with the Dow Jones and S&P 500 rising 7.5% and 5.7% respectively.
The AI boom remained a powerful driver, with Nvidia’s impressive earnings beats propelling AI-adjacent stocks to record highs. Vistra surged 308%, Nvidia gained 181%, Dell Technologies rose 63%, and Broadcom climbed 48% year-to-date. Wall Street analysts expect the AI rally to continue into 2025 as Nvidia’s next-generation Blackwell GPU chip deliveries commence.
Notably, 2024’s gains were broadly distributed across sectors, unlike 2023’s concentration in a few mega-cap tech stocks. Financials led with 35% gains, followed by utilities at 28%, while the equal-weighted S&P 500 rose 18%, suggesting sustainable market health.
Looking ahead to 2025, strategists remain largely bullish, with some predicting another 20% gain pushing the S&P 500 above 7,000, while JPMorgan forecasts a more measured 8% increase to 6,500.
Key Quotes
US equities should remain supported by the expanding business cycle, US Exceptionalism that is helping broaden the AI cycle and earnings growth, ongoing easing by global central banks and the wind-down of Fed’s QT in 1Q
JPMorgan strategist Dubravko Lakos-Bujas explained the bank’s newly bullish stance on stocks for 2025. This is particularly significant as JPMorgan had been bearish since late 2022, and their flip to optimism specifically highlights the AI cycle’s broadening impact as a key support factor for continued market gains.
Our Take
The 2024 market performance reveals a critical inflection point where AI has evolved from hype to a verified economic force. The fact that AI stocks sustained their momentum from 2023 while the broader market also participated suggests we’re witnessing genuine productivity enhancements rather than speculative excess.
Particularly noteworthy is the 308% gain in Vistra, a utility company, demonstrating how AI’s infrastructure demands are creating investment opportunities far beyond chip makers and software companies. This ripple effect validates the multi-trillion-dollar AI investment thesis.
The market’s ability to exceed even the most optimistic forecasts while maintaining broad participation across sectors indicates that AI’s economic impact is both deeper and wider than initially anticipated. As we enter 2025 with Nvidia’s Blackwell chips launching and enterprises accelerating AI deployment, the foundation appears solid for continued AI-driven market leadership, though investors should monitor whether valuations are keeping pace with actual productivity gains and revenue generation.
Why This Matters
This market performance underscores AI’s transformation from a speculative theme to a fundamental economic driver. The sustained AI boom throughout 2024 demonstrates that artificial intelligence investments are translating into tangible corporate earnings and economic growth, validating the massive capital expenditures by tech giants on AI infrastructure.
The 308% surge in Vistra and 181% gain in Nvidia highlight how AI is creating winners beyond traditional tech companies, extending into utilities and infrastructure providers essential for powering data centers. This broadening effect suggests AI’s economic impact is deepening and spreading across industries.
The market’s resilience despite initial skepticism from Wall Street strategists indicates that AI-driven productivity gains and business transformation are exceeding expectations. As Nvidia’s Blackwell chips roll out and AI applications mature, the technology is moving from experimental to mission-critical for enterprises.
For businesses and investors, this signals that AI adoption is no longer optional but essential for competitive positioning. The sustained rally also suggests that concerns about AI being a bubble may be premature, as the technology continues demonstrating real economic value and earnings power that justify elevated valuations.
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