There’s still about a month left in 2024, but U.S. stocks are on track for their best annual performance in years.

The S&P 500 is up about 27% so far this year, just ahead of its 2023 gain of about 24%. If the current gains hold, the benchmark index will have its strongest year since 2019.

Although Wall Street is still generally optimistic that the rise of U.S. stocks will continue until the end of the year, few people could have foreseen this situation at the beginning of this year.

At the start of the year, Wall Street's most bullish S&P 500 price target came from Ed Yardeni, president of Yardeni Research, who predicted the index would rise 17% to 5,400 by the end of the year.

At that time, he was an outsider, as most Wall Street strategists expected the S&P 500 index to rise only about 8% to around 5000 points.

The S&P 500 index has already set more than 50 closing highs this year, reaching a new all-time high of 6047 points on Monday, forcing strategists to catch up and revise their stock market price targets for the year.

Here are some things that happened this year that helped the market surpass the predictions of Wall Street's top forecasters.

Economic performance is strong

There have been ongoing concerns that a recession may occur in 2024, but these worries have ultimately proven unfounded.

The U.S. economy is performing well, with GDP growth nearing 3%, the labor market appears to be in its best shape, employment numbers are at record highs, layoffs are minimal, and retail sales data remains robust.

A robust economy has translated into strong corporate profit growth, and corporate earnings are expected to set a new record this year as measured by S&P 500 earnings per share.

Most importantly, inflation has been steadily declining this year, gradually approaching the Federal Reserve's long-term target of around 2%.

Interest rates are on the decline.

With the high inflation of 2022 largely under control and returning to normal levels, the Federal Reserve has begun its interest rate cut cycle.

This is the first interest rate cut cycle by the Federal Reserve since the COVID-19 pandemic began in March 2020.

So far this year, the Federal Reserve has cut rates by 75 basis points, and the market widely expects it to cut rates again by 25 basis points later this month in its policy meeting.

Lower interest rates stimulate the economy and typically act as a positive factor for the stock market. Reduced borrowing costs can help boost corporate profits and valuations.

Presidential election concluded

Last month, the U.S. presidential election ended without controversy, removing a major uncertainty for the stock market.

Most market experts originally anticipated a long and drawn-out competition, with the winner possibly not being known until weeks after the election, but Trump secured victory earlier the day after voting.

The election results helped U.S. stocks achieve their best monthly gains of the year, with the Dow Jones and S&P 500 rising 7.5% and 5.7% in November, respectively.

Investors are now focused on the pro-business agenda of a potential second term for Trump, which includes the possibility of tax cuts and deregulation. Meanwhile, the market views Trump's tariff threats as mere bluster.

AI trading remains in full swing

The AI boom that started in 2023 has continued into 2024, with almost no signs of slowing down.

NVIDIA's series of impressive earnings performances have propelled its stock and those of other AI-related companies to all-time highs. Wall Street analysts expect this feast to continue until 2025 as deliveries of NVIDIA's next-generation Blackwell GPU chips begin.

Year-to-date, the stock prices of Zscaler, NVIDIA, Dell Technologies, and Broadcom have risen 308%, 181%, 63%, and 48%, respectively, all of which are seen as beneficiaries of the AI boom.

It's not just AI stocks that are driving the market higher

While AI stocks have surged this year, bringing huge gains to the tech sector, the broader stock market also participated in the rise in 2024.

The best-performing sectors year-to-date are financial stocks, which have risen by 35%, followed by utility stocks with a 28% increase, industrials and consumer discretionary stocks are up 25%, and technology stocks have risen by 22%.

Even on an equal-weight basis, the S&P 500 index has risen 18%. Thus, unlike in 2023, this year's stock market gains have not been concentrated in a few stocks.

This healthy performance suggests that robust returns for U.S. stocks in 2024 are sustainable.

What will happen in 2025?

Wall Street strategists remain generally bullish on U.S. stocks for next year.

While some veteran strategists expect the S&P 500 index to rise another 20% to above 7000 by 2025, others have taken a more cautious view.

J.P. Morgan, which has been bearish on the stock market since the end of 2022, has turned bullish. Analysts at the bank expect the S&P 500 index to rise 8% next year, with a target price of 6500.

J.P. Morgan strategist Dubravko Lakos-Bujas stated last week: 'U.S. stocks should continue to be supported by the ever-expanding business cycle, the U.S. exception narrative that aids the AI cycle's development and corporate profit growth, the ongoing easing policies of global central banks, and the gradual tapering of quantitative tightening by the Federal Reserve in the first quarter of next year.'

As we enter the new year, U.S. stocks are in a bullish seasonal phase, and investors may be preparing for further increases to cap off an impressive year for the stock market.

Article reposted from: Jin10 Data