The Federal Reserve's decision to cut interest rates in 2024 had significant impacts on the U.S. economy and financial markets. In September, the Fed implemented a larger-than-expected 0.5 percentage point rate cut, followed by two additional 0.25 point cuts in November and December, bringing the federal funds rate to a range of 4.25% to 4.5%12. This easing of monetary policy was aimed at supporting economic growth and stabilizing a slowing labor market2.

The rate cuts had mixed effects on different sectors of the economy. While they offered relief to Americans carrying credit card balances and other debt1, the stock market's reaction was volatile. Initially, stocks surged to record highs following the September cut3. However, when the Fed signaled fewer rate cuts than expected for 2025, stocks tumbled, with growth stocks particularly affected45. The rate reductions were generally seen as positive for dividend-paying stocks, especially in the financial sector, and were expected to benefit the real estate market by reducing borrowing costs3.

The S&P 500's performance in 2023 and 2024, with gains exceeding 20% in both years, echoes a pattern last seen in the late 1990s. Historically, the index has delivered an average annual return of 10.13% since its inception in 1957, though this drops to 6.37% when adjusted for inflation1. The market's trajectory has been marked by significant fluctuations, including notable highs like the 46.59% gain in 1933 and lows such as the 47.07% drop in 19312. These patterns underscore the market's cyclical nature, with periods of robust growth often followed by corrections or bear markets. For instance, the late 1990s saw exceptional returns, with the S&P 500 averaging a 28.5% annualized return between 1995 and 19993, highlighting the potential for extended periods of above-average performance.

The "Magnificent Seven" tech giants - Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla - continued to dominate the stock market rally in 2024, building on their impressive performance from the previous year. Nvidia emerged as the standout performer, with its stock price soaring by over 171% during the year, driven by the artificial intelligence boom1. The company's market capitalization reached $3 trillion, briefly surpassing Apple as the most valuable corporation1. Other members of the group also saw significant gains, with Meta Platforms experiencing a 194% increase and Amazon rising by 81% in 20232.

This concentration of gains in a small group of stocks raised concerns about market vulnerability, as these companies accounted for nearly 60% of the S&P 500's 15.3% total return in the first half of 20243. However, some analysts argued that this trend reflected the growing importance of AI and should not be viewed as a weakness in the market4. The dominance of these tech leaders was seen as a rational focus on high-quality, large-cap stocks capable of weathering higher interest rates and demonstrating robust earnings growth4.