Fueled by AI, the S&P 500 set 50 record highs in 2024

The US stock market has delivered remarkable performance in 2023-24, reminiscent of the late 1990s dot-com era, with the S&P 500 posting gains of nearly 27% in 2024 following a 24.2% increase in 2023.

Market momentum and key drivers: Artificial Intelligence has emerged as the primary catalyst for market gains, replacing the dot-com stocks that drove the late 1990s rally.

• Nvidia’s stock value has more than doubled in 2024, following a threefold increase in 2023, driven by strong demand for its AI chips
• Super Micro Computer, a server manufacturer for AI applications, has surged nearly 48% in 2024 after tripling in value the previous year
• The S&P 500 has set 50 record highs in 2024, demonstrating sustained market strength

Economic context: Despite earlier concerns about a potential recession, the economy has shown resilience in the face of the Federal Reserve‘s aggressive interest rate hikes.

• The economy has successfully navigated through the post-COVID recovery period
• The Federal Reserve’s interest rate increases to combat inflation have not triggered the widely feared recession
• Market optimism has been bolstered by expectations of future interest rate cuts

Historical perspective: The current market trajectory shares notable similarities with the late 1990s bull run, though with different underlying drivers.

• Following similar strong performances in 1998-99, the market continued its ascent in 1999 with a 19.5% gain
• The dot-com bubble eventually burst in early 2000, leading to a multi-year market decline
• The 2001 recession marked the end of that era’s bull market

Expert outlook and cautionary signals: Market strategists offer mixed perspectives on the sustainability of current market gains.

• UBS Global Wealth Management forecasts a more modest 9% gain for the S&P 500 in 2025, targeting 6,600
• Critics point to elevated valuations as stock prices have outpaced corporate profit growth
• The absence of a 10% market correction in 2024, which typically occurs every few years, raises concerns about potential market vulnerability

Risk assessment: The current market enthusiasm may be overlooking potential challenges ahead, warranting a more measured approach to investing.

• Market strategist Anthony Saglimbene suggests excessive optimism may be clouding investors’ judgment about potential risks
• The parallels with the dot-com era serve as a reminder that periods of exceptional returns can be followed by significant market corrections
• Current valuations and investor sentiment suggest a need for increased caution in the near term