With just a few trading days left to end 2024, Wall Street has been on a historic rally buoyed by the artificial intelligence (AI) craze and rate-cut optimism. A surge in technology stocks and the rise in the share of “Magnificent Seven” have also added to the strength. Trump’s win in the presidential election also bolstered optimism.
The S&P 500 and Dow Jones Industrial have risen 26.6% and 15%, respectively, and the Nasdaq Composite has gained 33.4%. The strong gains were a breather amid the economic slowdown worries, geopolitical tensions and the Fed’s uncertain rate cut path for 2025.
Below, we discuss some of the hot events of 2024 that influenced the market in a big way:
The Fed slashed interest rates three times over the past three months, bringing down the benchmark rate to 4.25-4.50%. However, the central bank delivered a less dovish view for 2025 in the latest meeting. The Fed envisions only two rate cuts in 2025, in contrast to four projected in September, given a solid labor market and sticky inflation (read: Wall Street Dives on Less Dovish Fed: 5 ETF Zones That Win).
Low rates reduce the cost of borrowing, which is often needed to finance the expansion of companies, thereby driving growth. This can positively impact sectors like real estate, consumer discretionary and financial services, which are typically sensitive to interest rate changes.
In real estate, lower rates can boost housing market activity by making mortgages more affordable. For consumer discretionary sectors, reduced borrowing costs can lead to increased consumer spending. In the financial sector, while lower rates can compress net interest margins for banks, they can also encourage lending and potentially lead to increased consumer and business loan activity.
As a result, investors could bet on any of these sectors to magnify gains in the rest of the year. Some of the ETFs are Vanguard Real Estate ETF VNQ, Consumer Discretionary Select Sector SPDR Fund XLY, iShares U.S. Home Construction ETF ITB and Financial Select Sector SPDR Fund XLF. XLF has a Zacks ETF Rank #1 (Strong Buy), while XLY has a Zacks ETF Rank #2 (Buy). The remaining two have a Zacks ETF Rank #3 (Hold).
Wall Street remains optimistic about the incoming administration’s economic agenda. President-elect Trump’s policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations will likely boost the economy. Banks are well-positioned to benefit from Trump’s deregulation and lower corporate tax policies. Trump can usher in a “new era” of lighter financial regulation after 15 years of stricter control following the financial crisis of 2008-2009. Additionally, Trump emphasizes energy independence, and his policies are likely to favor fossil fuels, promoting deregulation in the oil, gas, and coal industries. He is in favor of expanding oil exploration, including increased fracking activities.
SPDR S&P Bank ETF KBE and Energy Select Sector SPDR XLE, both with Zacks ETF Rank #2 (Buy), could be excellent picks for 2025.
The digital currency reached a record high of more than $108,000 on Dec. 17 before fizzling down in recent weeks. Bitcoin is up 130% this year, outperforming traditional investments like stocks, bonds and gold, driven by strong investor and institutional demand, Fed rate cuts, and optimism for a cryptocurrency-friendly regulatory environment under Trump. The President-elect has vowed to make the United States “the crypto capital of the planet.”
First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT and iShares Bitcoin Trust IBIT have been at the forefront of the Bitcoin rally, almost doubling this year. First Trust SkyBridge Crypto Industry and Digital Economy ETF are designed to provide exposure to companies that SkyBridge believes are driving cryptocurrency, crypto assets and digital economy-related innovation. Meanwhile, IBIT seeks to reflect the performance of the price of Bitcoin. It enables investors to access Bitcoin within a traditional brokerage account (read: 2025 Looks Bright for Bitcoin: ETFs Ready to Gain Big).
The AI boom will continue to fuel the rally in the broader equity market, with companies investing huge sums in the technology sector and beyond. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. The generative AI market is poised to explode, seeing a CAGR of 42% to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a new report by Bloomberg Intelligence.
Investors seeking to make the most of the AI industrial revolution should consider utility ETFs like Global X Robotics & Artificial Intelligence ETF BOTZ and Global X Artificial Intelligence & Technology ETF AIQ.
The so-called “Magnificent Seven” stocks have been on a spectacular ride this year and are one of the big forces driving the broad market rally. Roundhill Magnificent Seven ETF MAGS, which offers concentrated exposure to the “Magnificent Seven” stocks, is up 73.6% this year, just behind investors’ darling bitcoin ETFs (read: Mag 7 ETFs Look Unstoppable Heading Into 2025).
As of Dec. 11, the Magnificent Seven market-cap valuation surpassed $18 trillion for the first time ever, according to Dow Jones Market Data. With a combined weightage of 31% in the S&P 500, these stocks are poised to see more gains in 2025.
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