When the S&P 500 (IVV) returned 23% for the year, it marked the first back-to-back annual return of over 20%. This is the first time since 1997-1998. Stocks gained when the Federal Reserve ended its higher-for-longer interest rate policy. The rate-cutting cycle led to the magnificent 7 and artificial intelligence suppliers trading higher.
Investors may ignore penny speculations in the AI sector that have a one-billion-dollar market capitalization. Their revenue is too low, and they lose money. Eventually, firms like BigBear.ai (BBAI) and SoundHound (SOUN) will fall sharply if they do not make a profit this year. Consider these stocks as too good to be true.
Nvidia (NVDA) led the AI mania in 2024 and will continue to impress stock markets this year. The firm has a strong platform for AI solutions. Neither Advanced Micro Devices (AMD) nor Intel (INTC) may offer the same level of performance.
In November 2024, the Trump bump lifted the index further. This month, markets may not experience the same tailwind. The incoming President may impose tariffs of 25% against Mexico and Canada. It may add even higher tariffs against China. All three countries may respond with tariffs. This increases costs for American consumers, raising inflation rates.
Should the Federal Reserve increase interest rates to lower demand and slow inflation, S&P 500 would risk falling this year.