NEW YORK — As 2024 approaches its conclusion, the S&P 500 is poised to achieve an impressive gain of nearly 27%, having reached 50 record highs within the year. This marks an exceptional continuation of its 24.2% growth from the previous year, reflecting an extraordinary two-year performance reminiscent of the dot-com era.
Unlike the past boom that was mainly driven by the dot-com industry, this current surge is heavily influenced by soaring valuations in the artificial intelligence sector. For instance, Nvidia has seen its value more than double after experiencing a rise of over three times just in 2023, largely due to its chips being integral to the AI advancement. Super Micro Computer, a manufacturer of servers utilized in AI as well as other computing processes, has notably surged nearly 48% this year following a more than tripling in value the prior year.
At the same time, the economy is still recovering from the last recession triggered by the COVID-19 pandemic. However, it has surprisingly dodged another recession that many financial experts on Wall Street feared could occur, largely as the Federal Reserve raised interest rates to a two-decade high in an effort to combat high inflation by tempering economic growth.
Comparing the current market to performances from the late 1990s, one can note that the stock market continued to grow in 1999, with a 19.5% increase fueled by economic expansion and the continuing inflation of the dot-com bubble.
Many analysts are optimistic that the stock market could see upward trends in 2025 as well, though they don’t expect a repeat of the current magnitude. The economy continues to display growth signs, and it appears the Federal Reserve may implement further interest rate cuts to support this momentum. Jason Draho, head of asset allocation for UBS Global Wealth Management in the Americas, suggests that the S&P 500 might reach 6,600 by the end of 2025, representing a roughly 9% increase from its latest close.
In the past, however, similar periods of prosperity have also halted abruptly, as seen after 1999 when the S&P 500 hit its peak in early 2000 followed by a multi-year decline as the dot-com bubble burst and the economy fell into a recession in 2001.
Presently, critics caution that the stock market seems overpriced, as valuations have outpaced the growth of company profits. Notably, the S&P 500 has not witnessed any drop of at least 10% this year, and such corrections typically occur every few years.
Anthony Saglimbene, chief market strategist at Ameriprise, suggests exercising caution in light of the current market dynamics. He notes, “At the end of the day, there’s just too much optimism and not enough recognition of what could derail stock momentum for rational investors not to pump the brakes a bit.”
