A vintage year for US stock markets that few people expected

A YEAR ago, equity investors and strategists braced for a potentially turbulent 2024, worrying about the risk of a hard landing for the US economy and interest-rate cuts that could come too late to prevent it.

Fast forward to now: 2024 is set to enter Wall Street’s hall of fame of bull years.

Heading into the year, few anticipated that the S&P 500 Index’s annual gain would be among the best in history. Not many expected another blistering rally fuelled by a handful of tech titans and market sentiment so bullish that one risk event after another got cleared without a scratch.

In late 2023, a slowdown was the central scenario for a lot of economists and inflation was still a major concern, blurring the path for monetary policy and the outlook for corporate profits. But interest rates have come down, growth is still robust and earnings are rising, pushing the market higher, while volatility has remained subdued despite a flurry of risk events.

The yearly performance of the Nasdaq 100 and the S&P 500 is closer than it has been historically, with both benchmarks up more than 20 per cent. Artificial intelligence poster child Nvidia tripled once again in 2024, and all things technology followed in its wake.

Following an already great 2023, not a lot of market participants would have thought that this year could see a repeat. “There has been an extraordinary equity run – particularly in the US,” said William Davies, global chief investment officer at Columbia Threadneedle Investments. “Economic growth in the US has been solid and inflation has steadily decreased.”

Market swings were benign, with only one big valley of tears: a summer pullback that culminated in a small sell-off around early August. The drop lasted for just less than a month and failed to cross the threshold of 10 per cent, typically seen as a correction.

The calm was supported by relentless inflows to stocks, which accelerated further this year. In total, more than US$1 trillion has been pulled into US stocks since 2020 and a record US$141 billion over the past four weeks, according to Bank of America’s latest fund flow analysis. Strategists led by Michael Hartnett recommend being long equities, betting on a “US boom” scenario in the first quarter of next year before switching attention to international stocks later on.

And while geopolitics were a constant threat, an escalating conflict in the Middle East, the ongoing war in Ukraine and the US presidential election all failed to generate any deep-rooted fears. China unleashed a wave of stimulus, and though it isn’t out of the woods yet, it was enough to keep the narrative of a healthy global economy alive.

And even Europe did well. Most of the region’s country benchmarks are in the green this year, despite a shaky economic outlook and collapsing governments in France and Germany. Gains in the US were so strong, however, that the Stoxx 600 is set for one of its worst years versus the S&P 500. French equities are also a rare developed-market underperformer in 2024 due to political turmoil.

As the new year looms, the mood this time is tilted towards the upside with nobody on Wall Street expecting a major correction, though there’s a hint of scepticism over whether stocks will be able to pull off three great years in a row.

“Earnings growth forecasts for 2025 in the US remain optimistic, at around 15 per cent, “ Columbia Threadneedle’s Davies said. “This continued resilience is to some extent a little surprising, because the global economy is not without risks as we move into 2025.” BLOOMBERG