• Wall Street saw remarkable gains in 2024, driven by the AI boom and Federal Reserve's interest rate cuts.
• Companies like Nvidia, known for their AI processors, saw their shares rise by over 170%.
• Despite ending the year negatively, the market is set for continued strength in 2025, with AI growth predicted to continue.
• Investors should remain cautious due to geopolitical instability and uncertainties surrounding the new U.S. administration's policies.

2024 was a year of remarkable gains for Wall Street, despite ending on a somewhat somber note. The year was marked by geopolitical strife, a U.S. presidential election, and shifting speculation regarding the Federal Reserve's policy. However, investors were gifted with significant gains, largely driven by the explosion of artificial intelligence (AI) and a series of interest rate cuts by the Federal Reserve.

The U.S. stock market, powered by these twin engines, reached record highs. The Nasdaq surged 28.6% and the S&P 500 notched a 23.3% gain. This marked the best two-year run for the S&P 500 since 1997-1998. The Dow Jones Industrial Average also posted a 12.9% advance for the year.

The AI boom, in particular, played a significant role in the market's performance. Companies like Nvidia, known for their processors adept at running AI models, saw their shares rise by more than 170% in 2024.

AI and the Future of the Market

The growth in AI is set to continue and move beyond hardware to software across most sectors, according to Greg Bassuk, CEO at AXS Investments in New York. However, the year-end saw the three major U.S. stock indexes close in negative territory, ending a low-volume session that contrasted with the tumultuous year that preceded it.

The Nasdaq jumped 6.2% for the fourth quarter, while the S&P 500 advanced 2.1%. The Dow eked out a 0.5% gain for the October-December period. Looking ahead to 2025, financial markets are pricing in about 50 basis points of additional interest rate cuts from the Fed.

Investors are also eyeing stretched valuations and uncertainties surrounding tax and tariff policies from the administration of President-elect Donald Trump. The geopolitical instability, particularly the Russia/Ukraine war and continued strife in the Middle East, could trigger consternation in companies and sectors with ties to the affected regions.

Global Market Performance and Outlook

In the global context, Indian blue-chip equity indices, Sensex and Nifty50, traded slightly lower on the first session of 2025, dragged down by losses in banking stocks. Analysts anticipate that the markets will likely remain near current levels as they await the start of the quarterly earnings season next week.

In Europe, despite gains, stocks recorded their worst quarterly showing in more than two years, as uncertainty around interest rates and the Trump administration's policies halted a rally that had pushed several markets to record highs this year.

The chief investment officers of some of the UK's largest asset managers expect UK stocks to outperform global equities in 2025. They identified rising inflation as the second most significant risk, with government debt levels, stock market concentration, and a potential US recession also featuring highly on the list of concerns.