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AI boom, Fed rate cuts lift US stocks to new highs in 2024

Futures up: Dow 0.21%, S&P 500 0.29%, Nasdaq 0.36%

Published: Tue 31 Dec 2024, 4:44 PM

Updated: Tue 31 Dec 2024, 4:45 PM

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  • Reuters

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Traders at the New York Stock Exchange. The S&P 500, Dow and Nasdaq are near record highs. — AFP

Traders at the New York Stock Exchange. The S&P 500, Dow and Nasdaq are near record highs. — AFP

US stocks index futures edged higher in the last trading session of 2024, continuing its bull run from more than two years ago on signs of post-pandemic economic resilience, hopes of lower borrowing costs and AI boost.

The S&P 500, Dow and Nasdaq are near record highs and are on track to end higher for a second straight year.

A nearly 100-basis point cut in interest rates in 2024 by the Federal Reserve and a rally in technology stocks in anticipation of boost to corporate profits from artificial intelligence powered a strong surge in equities in 2024.

The S&P 500 tech, communications services and consumer discretionary have jumped more than 30 per cent this year.

Although AI poster-child Nvidia’s nearly 170 per cent surge this year was smaller compared with last year, the rally helped the company notch $3 trillion in market value, while Tesla reclaimed $1 trillion level.

At 05:45 a.m. ET, Dow E-minis were up 90 points, or 0.21 per cent, S&P 500 E-minis were up 17 points, or 0.29 per cent and Nasdaq 100 E-minis were up 75.25 points, or 0.36 per cent.

Nvidia was up 0.7 per cent, while the Elon Musk-led automaker added 1.6 per cent in premarket trading. Moves are expected to be influenced by thin volumes ahead of New Year’s holiday on Wednesday.

“It’s also normal to start thinking that the AI rally will one day fizzle out...but still, all those who called for a correction have so far happened to be wrong, and Wall Street analysts spent the year rising their price targets,” said Ipek Ozkardeskaya, senior analyst, Swissquote Bank.

Toward the end of the year, risk-taking improved as Donald Trump’s presidential win boosted bets that he would deliver on his promises to ease regulations, cut taxes and raise tariffs to help domestic businesses.

His win also powered small-cap stocks. The Russell 2000 clinched a record high, setting it up for a rise of about 10 per cent — its second consecutive annual gain. Banks also have benefited and are up more than 30 per cent this year.

However, equities hit a rough patch in December, putting the S&P 500 on course for its biggest monthly decline since April, due to higher yields on Treasury notes at a time when equity valuations are stretched and the Fed is cautious.

The yield on the benchmark 10-year note has come off its seven-month high and is at 4.5 per cent, as markets see Trump’s plans as inflationary, potentially slowing the pace of the Fed’s rate cuts.

Traders expect the central bank to deliver its first rate cut of 2025 in either March or May, according to the CME Group’s FedWatch Tool.

Trump’s win has also proved to be a tailwind for crypto stocks as bitcoin prices touched $100,000.

MicroStrategy shares have more than tripled in value this year as it continues buying and holding bitcoin. The stock rose 3.3 per cent on Tuesday, while Coinbase and MARA Holdings added 1 per cent and 0.6 per cent, respectively.

Other areas of the market, however, have witnessed annual declines, with materials stocks down more than 2 per cent, hurt by the economic woes in top metals consumer China.



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