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WHAT A DIFFERENCE S&P 500,S&P 500PCEaiS&P 500AIS&P 500Your browser does not support the element.By Alice Fulwood, Wall Street editor, The Economista year makes. As went to press in November 2023, the the leading index of American equities, was in the doldrums. Share prices were 15% off their peak in early 2022. A chart of the index’s performance over the previous two years looked like a mountain range: pushed up and down on inflation worries, undercut by rising interest rates and spooked by fears of a growth slowdown. When pondering what 2024 might bring, your correspondent argued that, after a couple of years of deep uncertainty, investors might finally get enough information about the state of the economy to decide whether to be jubilant or miserable.And their verdict? They chose jubilation. Since its trough in October 2023 the has climbed by more than 40%. The American economy has powered on, unperturbed by tighter credit conditions. Productivity has continued to surge. In the year to the end of June 2024 output per hour grew by 2.5%, an astonishing pace compared with the average from 2005-19 of just 1.5% and a better showing than even the post-war average of 2.2%. Inflation has all but abated. On a three-month annualised basis, core , the Federal Reserve’s preferred gauge of price levels, now stands at just 2.3%, roughly in line with the target. Monetary policy is at last being eased. In September, Fed policy rates were cut, for the first time since 2020, by 0.5 percentage points from their post-financial-crisis peak of 5.25-5.5%.In addition to happy news from the economy, returns have been supercharged by the boom. The share prices of the “magnificent seven”, a group of leading tech companies, have risen by 90% since the October 2023 lows. Nvidia alone has added $2.5trn—more than Google is worth—to its market capitalisation. Investors even rejoiced at the re-election of Donald Trump, who promises to cut taxes and deregulate the economy.Yet after a year defined by growing certainty that all was well, the summer of 2024 has revealed just how anxious investors have once again become. Though the economy still appears to be growing at a remarkable clip, amber warning signs are flashing. The labour market softened. Loan delinquencies, in commercial property and on credit-card balances, have climbed to post-financial-crisis highs.With the at fresh all-time highs and valuations—the price that investors are having to pay for a firm, relative to its profits—back at cyclically peaky levels, investors are twitchier. Stockmarkets plunged when confronted with weakness in data releases, such as surveys on consumer confidence or manufacturing indexes, that are usually considered mostly unimportant compared with the blockbuster releases of information such as inflation data or job numbers.Starry-eyed optimism also feels more precarious. Confidence about Nvidia’s prospects was easier when it was a mere $1trn company than it is now, as it jostles with Apple to be the world’s most valuable firm. Since reaching new highs in July the magnificent seven have been on a stomach-churning up-and-down journey, single-handedly wiping about 10% from the before adding some back (and then losing and regaining ground again).In 2024 investors got what they wanted: a strong economy, disinflation and easier monetary policy. That heady mix was coupled with truly remarkable technological progress. Investors rejoiced in this mix by escaping the jagged mountain range and heading straight for a new peak. But given changeable economic data, stretched valuations and the risk that Mr Trump brings chaos on trade, it is hard to believe 2025 will deliver such a fortunate mix. Back to the mountain range, then.
