S&P 500 posts 23% gain for 2024 as stocks close slightly lower in final session of year

Stocks closed lower on Tuesday as investors wrapped up another booming year that hoisted the S&P 500 to its second consecutive annual gain exceeding 20%, spurred by enthusiasm for rate cuts, economic strength and artificial intelligence.

The broad market index closed 0.43% lower at 5,881.63, while the Nasdaq Composite dipped 0.9% to 19,310.79 on 2024’s final day of trading. The Dow Jones Industrial Average slipped just 0.07% lower to 42,544.22.

The S&P 500 has surged more than 23% in 2024, building on a gain of 24.2% from last year. The two-year gain of around 53% is the best since the nearly 66% rally in 1997 and 1998.

Meanwhile, the Dow has added almost 13% in 2024, while the Nasdaq has outperformed with a gain of 29%.

The enthusiasm surrounding AI and its potential productivity boost helped power the major averages to a string of record highs throughout the year. AI chip darling Nvidia and iPhone giant Apple — members of the so-called “Magnificent 7” — rose 172% and 30%, respectively, and notched new highs of their own during 2024.

Developments in Washington, D.C., helped fuel the rally in the second half of the year. The Federal Reserve has cut its benchmark interest rate by a full percentage point since September, bolstering confidence that the U.S. economy can sustain its recent growth. Stocks also rallied sharply following President-elect Donald Trump’s win in November, as traders cheered the prospect of lower taxes and a looser regulatory approach under a Republican administration.

Bank stocks in particular were one group that surged after the election, with JPMorgan and Goldman Sachs now up about 41% and 48%, respectively, year to date. Shares of Tesla, whose CEO Elon Musk is a close ally of Trump, are now up 64% year to date.

Meanwhile, bitcoin has performed even better than the stock market, up 121% for the year and topping $100,000 for the first time.

“I think a lot of what drove that enthusiasm is you had good developments on all those fronts in 2024. You had inflation on a downward trajectory, the Fed coming out aggressively in September when they started cutting rates,” said Yung-Yu Ma, chief investment officer for BMO Wealth Management. “And for a lot of the time you had a 10-year Treasury yield that was very well behaved, along with earnings growth. So you got everything together at once that was going well.”

In the fourth quarter, the Nasdaq and S&P have gained 6.4% and 2.1%, respectively, and are both on pace for a fifth consecutive positive quarter for the first time since 2021. The Dow is up a mere 0.5% over the same period for its fourth positive quarter in five.

Despite the strong year-to-date performance, Wall Street struggled in December’s final days, with investors take profits in some of 2024’s biggest winners and fears mounting over rising rates into year-end. The Dow is down 5.3% for the month. The S&P is off by 2.4%, while the Nasdaq is up less than 1%.

“If we have high valuations, and a lot of this is priced in, what is the next catalyst for the next 10% move? And if that’s not obvious, then I think, at least right now at the end of the year, we’re just getting people locking in a lot of profits,” Ma added.

Investors were hoping for a Santa Claus rally, which occurs when the market rises during each of the five final trading days of a calendar year and the first two trading days of January. Instead, the S&P 500 is on track to end the year with four-straight down days for the first time since 1966. Apple and Nvidia both fell on Friday for their third negative session in for.

The market is closed on Wednesday for New Year’s Day.