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U.S. stock futures are in positive territory ahead of the last trading day of 2024, reversing the last two trading session’s significant declines. Wall Street’s bull run, which started at the beginning of 2023, after a devastating 2022, continued the northbound journey in 2024.
In 2022, the three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – plummeted 8.8%, 19.4% and 33.1%, respectively. This was primarily due to rigorous interest rate hikes by the Fed to combat a 40-year high inflation rate.
In 2023, the Dow, the S&P 500 and the Nasdaq Composite rallied 13.7%, 23.9% and 43.4%, respectively. The turnaround was owing to the freezing of rate hikes by the Fed as the inflation rate declined gradually.
At the beginning of 2024, a large section of economists and financial researchers warned of the high valuation of U.S. stocks. Yet, with just a day of trading left, the Dow, the S&P 500 and the Nasdaq Composite have advanced 12.9%, 24.5% and 32%, respectively, year to date. An aggressive rate cut of 1% by the Fed and slowing inflation rate were the stimulus.
However, volatility reappeared in the second half of December. Despite a gradual decline, the inflation rate remained higher than the Fed’s 2% target level. This prompted Jerome Powell to hint in December of just two rate cuts of 25 basis points each in 2025 instead of four predicted in September.
Market participants also remained uncertain regarding the policies of the Trump 2.0 administration after President-elect Donald Trump takes oath on Jan. 20. Particularly, policies related to trade and tariffs will be closely monitored. Moreover, higher valuation of U.S. equities after an astonishing bull run of the past two years compelled investors to book profit at the end of this year.
A section of market researchers is optimistic that the recent softness of U.S. stock markets provides an opportunity to buy on the dip. In the last week of December, trading volumes remained muted, as usual, since most of the major institutional investors stayed side-tracked during this period, and retail investors took the driver’s seat.
Therefore, profit taking by retail investors open an opportunity for institutional investors to buy U.S. stocks on the dip. The gigantic financial strength of these investors likely to resume Wall Street’s northward journey in 2025.
Wall Street’s broad-market index – the S&P 500 – is set to end 2024 at around 5,900. Of the 17 major investment institutions, only one projected the S&P in negative in 2025. For the rest of 16 institutions, the S&P 500’s target for 2025 falls in the range of 6,400 to 7,100 with a mid-point of 6,750. This indicates an upside of nearly 14.4%.
