The financial landscape of the United States has entered a remarkable period akin to the late 1990s tech boomThe S&P 500 index has surged impressively, marking its highest growth rates in over two decadesThis year alone, the index has climbed by 27%, catalyzing a phenomenal 57% increase over the past two years—a trend reminiscent of the 1997-1998 market highs, which ultimately succumbed to the tech bubble burst in 2000.

Speculation regarding interest rate cuts has been a substantial pillar propping up stock pricesSince September, there has been a growing anticipation for the Federal Reserve to pivot towards lower rates after raising them systematically over preceding years

The only prior year that saw a drop in the S&P 500 index was 2022, where a drastic 20% decrease wiped out preceding gainsObservers note a striking similarity between the present market dynamics and those observed during the robust growth phase of the tech industry in the late 1990s.

One of the primary forces underpinning this bullish run mirrors the credit-induced enthusiasm observed at the dawn of the internet revolutionBack then, the boom was largely associated with internet companies and tech stocks, while today, artificial intelligence (AI) plays a pivotal role in driving market sentiment.

The unveiling of advanced AI technologies, such as the release of ChatGPT in November 2022, coincided with a pronounced decline in the S&P 500 index a month prior

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However, as the Fed began to soften its stance on inflation, the stock market reacted positively to the backdrop of burgeoning AI technologies becoming integral to key companies—most notably, NvidiaThe latter’s stock, priced at around $15 post-split in November 2022, experienced an explosive growth trajectory to reach an astonishing $150 per share, illustrating AI's considerable influence on market performance.

Beyond Nvidia, tech giants such as Meta and established players like Microsoft and Google also reaped tremendous benefits, with Meta seeing an increase exceeding 600% from its lows in 2022, further reflecting the overall enthusiasm surrounding AI integration. Tesla’s performance has been particularly high-octane, rising over 300% from its early 2023 lows, largely attributed to its vigorous incorporation of AI technology across revenue-generating products.

Amidst lower interest rates, risk appetites have swelled alongside optimistic sentiments for new technologies

The unprecedented excitement regarding AI has proven a potent driver for equity markets, reminiscent of the heady days preceding the tech bubbleInvestors, lured by the prospect of groundbreaking technology and favorable borrowing costs, have swarmed back to stocks, neglecting traditionally safer assets like bonds.

The socio-economic environment is vital in this regard; the confluence of lower borrowing costs and renewed investment fervor encourages a cycle of speculative investment behavior where increasing valuations invite further investment, creating a self-fulfilling prophecy for stock prices.

In 2024, various new variables have emerged that threaten to recalibrate the ongoing market rally

With the Republican Party solidifying its position within the government, expectations for a business-friendly administration have buoyed market sentiment, especially for tech giantsThe spotlight remains fixated on Elon Musk and Tesla, particularly as Musk’s close association with the incoming administration bolsters hopes for advances, particularly in autonomous driving, marking a critical intersection between AI and practical applications in the automotive sectorMusk has even gone so far as to challenge skeptics directly, urging them not to invest unless they believe in Tesla's capability to innovate in this realm.

However, one of the most significant driving forces behind the past two years of bullish activity can be traced back to the Federal Reserve's dovish stance, holding rates steady even when inflation rates are decidedly above the 2% target

Despite core CPI maintaining over 3% through 2024, the Fed’s strategic decision to cut rates in September and November speaks volumes about their nuanced approach to economic stability.

The timing of the Fed’s shifts in policy corresponds neatly with significant equity market rebounds, underlining just how integral Fed communications have become to the current bullish trends in U.Smarkets.

The notion of a “third implicit mission” of the Federal Reserve deserves close examinationThe "wealth effect" hypothesis, first discussed in 1947, asserts that when people perceive greater wealth, they tend to spend more; higher consumer spending, in turn, fuels improved corporate performance and wages, igniting inflation.

This creates a feedback loop: rising stock prices foster a wealth effect, which drives consumption rates higher, leading subsequently to the economy’s growth

It suggests that the Fed’s long-term strategic inclination might lean towards fostering rising equity prices, an assertion further reinforced by their approach to interest rate adjustments in recent years.

While this isn’t necessarily a foolproof approach to monetary policy, there’s a palpable sense among market participants that the Fed would prefer asset prices to rise rather than fallThis trend is likely to persist into 2025, albeit with moderating growthMany analysts predict parallels with the 1997-1998 market dynamic, potentially sustaining stock valuations through late 2025 or early 2026, when inflation might emerge as a hotter topic for the Fed again.

With Jerome Powell’s term concluding in May 2026, market observers are keeping a keen eye on Treasury actions, which could greatly influence valuations

Long-term interest rates that stay persistently low lessen the opportunity costs of investment; yet, any significant shifts in bond yield could displace investments back towards safer assets, causing volatility in an otherwise buoyant equity market.

Throughout 2024, my outlook remains cautiously optimistic regarding stocks—waiting patiently for a robust pullback has been keyDespite the first quarter’s mild corrections, the second quarter saw a sharper dip and another notable retracement just after mid-yearTemporary declines in the fourth quarter should be expected, resulting from external funding flows, especially boosted by the presidential race in the United States, but maintaining diligence against “FOMO” (Fear of Missing Out) feelings is prudent.

Recent market tests peaked around the pivotal 6000 mark, assisted by strong buy signals that emerged in mid-November, following months of trading patterns.

Analysis indicates the presence of untested resistance levels below the current price, with minor support within the 5,638 to 5,669 range

As of this moment, market movements have demonstrated a consistent trajectory.

Focusing on the technology-driven momentum fuelling U.Sequity markets, especially starkly illustrated by the NASDAQ 100 index soaring more than 100% from its 2022 low, contrasted with the S&P’s stability reflecting a 74% increase.

Historically, during the late 1990s, the NASDAQ 100 index exhibited exuberance with 135% gains in 1997 and another 102% in 1999. Current trajectories could suggest equally sustained performance.

The comparative performance of the NASDAQ in recent years ranks similarly to the late 1990s boom, with growth rates slightly below 98% over a two-year horizon