Stocks Set for Best 2 Years Since '90s

Interest-rate levels create doubts that market can maintain sizzling pace of 2024

- KAREN LANGLEY

U.S. stocks roared to another blockbuster showing in 2024. Few expect such a torrid advance in the year to come.

The S&P 500 has climbed 24%, notching 57 record closes as the economy remained healthy, inflation ticked lower and an AI-fueled rally in big tech stocks powered on. Even with a stumble in the last few trading days, the broad U.S. stock index is on pace for its best consecutive years since 1997 and 1998, according to Dow Jones Market Data, during the lead-up to the bursting of the dot-com bubble.

The rally has created millionaires and turned professional investors increasingly bullish: In December, the Bank of America Global Fund Manager Survey found record enthusiasm for U.S. stocks, as measured by the net share of respondents favoring the group. The payoffs haven’t been limited to the equity market: Gold is on pace for its best year since 2010, while bit- coin more than doubled, vaulting above $100,000 for the first time before slipping below that mark.

Many investors anticipate that a resilient U.S. economy and a Federal Reserve that has switched to cutting interest rates—even if not as deeply as some had hoped—will allow stocks to push higher. But they caution against thinking that the rapid pace of gains in the past two years will repeat in 2025.

For one thing, interest rates may remain higher than anticipated, affecting borrowing costs and potentially giving investors lower-risk alternatives to the stock market. The Fed recently signaled doubt over how much more it will cut rates. Benchmark Treasury yields had been rising even before that. For another: The powerful rally has left stocks looking increasingly expensive.