There is still about a month until the end of 2024, but US stocks are moving towards their best annual performance in years.

The S&P 500 is up about 27% this year so far, slightly higher than its 2023 gain of around 24%. If current gains continue, the benchmark index will have its strongest year since 2019.

Although Wall Street is still generally optimistic that the rise in US stocks will continue until the end of the year, few people can predict this situation at the beginning of this year.

At the beginning of this year, the most bullish price target for Wall Street's S&P 500 came from Ed Yardeni (Ed Yardeni), president of Yardeni Research, who expected the index to rise 17% to 5400 by the end of this year.

He was a different person at the time because most Wall Street strategists expected the S&P 500 to rise by only 8% to around 5,000 points.

The S&P 500 has hit more than 50 daily closing highs this year, hitting a record high of 6047 on Monday, forcing strategists to catch up and raise their stock market targets throughout the year.

Here are some of the things that happened this year that helped the market beat predictions of Wall Street's top forecasters.

Good economic performance

There have been concerns about a possible recession in 2024, but in the end, these fears proved unfounded.

The US economy is performing well, with GDP growing close to 3%, and the labor market appears to be at its best. The number of employed people has reached a record high, there are few layoffs, and retail sales data continues to be strong.

A steady economy has translated into strong corporate earnings growth. As measured by earnings per share in the S&P 500 index, corporate profits are expected to set a new record this year.

Most importantly, the inflation rate has been declining steadily since this year, gradually approaching the Federal Reserve's long-term target of around 2%.

Interest rates are falling

With the high inflation rate in 2022 largely under control and trending back to normal levels, the Federal Reserve has begun a cycle of cutting interest rates.

This is the first cycle of interest rate cuts by the Federal Reserve since the COVID-19 pandemic in March 2020.

The Federal Reserve has cut interest rates by 75 basis points so far this year, and the market generally expects it to cut interest rates by another 25 basis points at a policy meeting later this month.

Falling interest rates stimulate the economy and are usually a favorable factor for the stock market. Reduced borrowing costs can help improve business profits and valuations.

The presidential election is over

The US presidential election ended without controversy last month, removing a great deal of uncertainty for the stock market.

Most market experts had expected this to be a long and protracted competition, and the winner might not be known until a few weeks after the election, but Trump locked in the victory as early as the day after the vote.

The election results helped US stocks achieve their best monthly gains this year. The Dow and S&P 500 indices rose 7.5% and 5.7% respectively in November.

Investors are now focusing on Trump's pro-business agenda for his second term, which includes lower taxes and possible deregulation. Meanwhile, the market sees Trump's tariff threat as nothing more than a bluff.

AI transactions are still in full swing

The artificial intelligence boom, which began in 2023, continued until 2024, and showed little sign of slowing down.

A string of impressive earnings results from Nvidia propelled its stock and shares of other AI-related companies to record highs. Wall Street analysts expect the feast to continue until 2025 as deliveries of Nvidia's next-generation Blackwell GPU chips begin.

Since the beginning of the year, shares of Vistra, Nvidia, Dell Technologies, and Broadcom have risen by 308%, 181%, 63%, and 48%, respectively, and these companies are all seen as beneficiaries of the AI boom.

It's not just AI stocks that are driving the market higher

While AI stocks surged this year, bringing huge benefits to the tech industry, the broader stock market also participated in the rise in 2024.

The best-performing sector since the beginning of the year was financial stocks, which rose 35%, followed by utilities stocks, which rose 28%, industrial and non-essential consumer goods stocks rose 25%, and technology stocks rose 22%.

Even on an equal basis, the S&P 500 rose 18%. Thus, unlike 2023, most of this year's stock market gains were not concentrated on a few stocks.

This healthy performance shows that the steady return of US stocks in 2024 is sustainable.

What will happen in 2025?

Wall Street strategists are generally bullish on next year's US stocks.

While some veteran strategists expect the S&P 500 to rise by another 20% to over 7000 in 2025, others have taken a more cautious view.

J.P. Morgan Chase, which has been bearish on the stock market since the end of 2022, turned bullish. The bank's analysts said they expect the S&P 500 index to rise 8% next year, with a target price of 6,500.

J.P. Morgan strategist Dubravko Lakos-Bujas said last week: “US stocks should continue to be supported by an expanding business cycle, US exceptionalism that contributes to the development of artificial intelligence cycles and corporate profit growth, continued easing policies by central banks around the world, and the gradual reduction of quantitative austerity policies by the Federal Reserve in the first quarter of next year.”

Before entering the new year, US stocks are in a bullish seasonal phase, and investors may be preparing for further increases, bringing the stock market's impressive year to a successful conclusion.