US stocks are about to achieve a feat so rare that it’s only ever happened a handful of times.
The S&P 500 is set to gain over 20% this year after rising 24% in 2023. Back-to-back gains of over 20% would be the best performance for the benchmark index since 1997 and 1998, according to data from FactSet.
It’s an extraordinary event for the modern-day version of the index. (Precursors also racked up that kind of performance three other times, in 1927 and 1928, 1935 and 1936 and in 1954 and 1955, according to a Bank of America analysis.)
Despite fizzling out in December and missing an expected “Santa Claus rally” to close out 2024, markets notched a blockbuster year, building off a strong 2023.
Wall Street saw impressive returns this year as inflation cooled and consumer spending remained strong, while the job market proved solid but slowing. Investors were bullish on strong earnings growth for tech companies, and stocks surged following President-elect Donald Trump’s reelectionin November.
The blue-chip Dow index rose over 12% this year, while the tech-heavy Nasdaq index gained over 31%.
The S&P 500 is up almost 60% over the past two years, after a poor performance in 2022 that saw the index fall 20%.
US markets have also outperformed stocks in Europe and Asia across this year.
“Inflation is waning, interest-rate cuts are in motion and earnings are trending higher, all which bolster sentiment and provide valuation support,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.
The consensus among big banks and research analysts appears to be continued growth into 2025 amid strong economic data, earnings growth and expectations of a business-friendly Trump administration. Analysts expect the S&P 500 to rise by 14.8% in 2025, according to FactSet.
But some analysts say stocks are currently overvalued, and uncertainty over the speed of future rate cuts from the Federal Reserve as well as looming geopolitical risks could spark a selloff. With such eye-watering gains in the past two years, it is uncertain whether the bull market can last.
“We believe the chances of another positive year in 2025 are favorable given the high probability of economic growth and a Fed that is likely to cut rates next year,” Jeffrey Buchbinder, chief equity strategist at LPL Financial, said in a December 30 note. “But if resurgent inflation takes rate cuts off the table or speculation gets out of hand, this bull market could have a difficult time making it through next year.”
December was the worst month since April for the S&P 500 and the Nasdaq, according to data from FactSet, as selloffs in tech stocks dragged the indices lower.
Indeed, it’s rare to see three straight years of 20% gains in the stock market, according to Callie Cox, chief market strategist at Ritholtz Wealth Management.
“Everybody’s expecting a good year next year, and that leaves a lot of room for disappointment,” Cox told CNN.
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