The stock market has never looked like this before – regardless of who is president
As President-elect Donald Trump prepares to begin his second term in office, investors are debating how his proposed policies will affect the stock market. While the answer may not be clear, what is clear is the amazing state the market is in as it takes over the country.
For another, 2024 marked the second consecutive year the S&P 500 (^GSPC) rose more than 20%, a feat not seen since 1997-1998.
When it closes: January 17th at 5:11:45 PM EST
There were several reasons for the big gains: The Federal Reserve cut interest rates for the first time in nearly four years in 2024 and followed with two more cuts, effectively lowering the cost of borrowing, which is good for both businesses and consumers.
Corporate income growth accelerated during the year. Despite fears of short-term growth that spooked investors in late summer, the US economy ended 2024 strong. And excitement over the prospects of productive artificial intelligence ignited among investors, giving a boost to AI darling Nvidia (NVDA) and its “Magnificent Seven” peers.
As we approach the circle, last year’s big gains were fueled by a handful of players. In fact, the S&P 500 has never been this concentrated, with the top 10 stocks in the index making up about 40% of the index. Many of those stocks, including the “Magnificent Seven,” have driven the bulk of the gains over the past two years.
While many have called the S&P 500 rally the biggest risk in the bull market, it’s been a big reason why US stocks have soared. Tech giants outperformed the other 493 companies in the S&P 500, supporting investors’ bias toward America’s biggest tech names.
Meanwhile, the S&P 500’s current high valuation, which sits at a trailing 12-month price-to-earnings ratio of 21.5, per FactSet, is well above the five-year average of 19.7 and the 10-year average of 18.2. At 21.5, the value of the S&P 500 was only higher than this level during the 2021 post-pandemic boom and dot-com bubble.
Several Wall Street strategists pointed out that the index’s growth in major technology companies supports the higher levels of analysis.
“Today’s market, 50% of it is low-growth companies, technology, healthcare, high-end industries,” Bank of America Securities’ head of US equity and quantitative strategy Savita Subramanian told Yahoo Finance in December. “Even back in the 80s, 70% of it was productive. So I think comparing today’s frequency with historical rates is fraught with problems.”
