AI-Powered Tech Boom Fuels 2024 Stock Market Rally

Despite election uncertainty and widespread economic discontent caused by stubbornly high prices, the U.S. stock market reached new highs in 2024. Once again, the so-called "Magnificent Seven", i.e. Apple, Amazon, Microsoft, Meta, Alphabet, Tesla and Nvidia were the main drivers behind the rally, as the accounted for more than half of the S&P 500's 25-percent return for the year. Fueled by an ongoing AI investment cycle, Nvidia alone saw its share price surge 171 percent, contributing more than 20 percent to the market-cap-weighted index's full-year return.

According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the information technology and communication services sectors, i.e. most things tech, were responsible for 56.5 percent of the S&P 500’s total return of 25 percent last year. Excluding companies from these two sectors, the index would have returned just 11 percent in 2024.

Other major contributors to last year's market rally were the financials sector, which contributed 15 percent to the S&P 500's return and the consumer discretionary sector, which accounted for 11 percent of the index's total return in 2024. While this may seem surprising during times of high prices and economic discontent, when consumers typically cut back on non-essential spending, it’s important to note that mega caps Amazon and Tesla are part of this sector. Given their size and weight in the market-cap-weighted index, these two companies, which saw their share prices climb 44 and 63 percent, respectively, were responsible for most of the sector's overall contribution.