US STOCKS-AI boom, Fed rate cuts lift U.S. stocks to new highs in 2024

For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.

Dec 31 (Reuters) - U.S. stocks index futures edged higher in the last trading session of 2024, continuing its bull run from more than two years ago on signs of post-pandemic economic resilience, hopes of lower borrowing costs and AI boost.

The S&P 500 .SPX, Dow .DJI and Nasdaq .IXIC are near record highs and are on track to end higher for a second straight year.

A nearly 100-basis point cut in interest rates in 2024 by the Federal Reserve and a rally in technology stocks in anticipation of boost to corporate profits from artificial intelligence powered a strong surge in equities in 2024.

The S&P 500 tech .SPLRCT, communications services .SPLRCL and consumer discretionary .SPLRCD have jumped more than 30% this year.

Although AI poster-child Nvidia's NVDA.O nearly 170% surge this year was smaller compared with last year, the rally helped the company notch $3 trillion in market value, while Tesla TSLA.O reclaimed $1 trillion level.

At 05:45 a.m. ET, Dow E-minis 1YMcv1 were up 90 points, or 0.21%, S&P 500 E-minis EScv1 were up 17 points, or 0.29% and Nasdaq 100 E-minis NQcv1 were up 75.25 points, or 0.36%.

Nvidia was up 0.7%, while the Elon Musk-led automaker added 1.6% in premarket trading. Moves are expected to be influenced by thin volumes ahead of New Year's holiday on Wednesday.

"It's also normal to start thinking that the AI rally will one day fizzle out...but still, all those who called for a correction have so far happened to be wrong, and Wall Street analysts spent the year rising their price targets," said Ipek Ozkardeskaya, senior analyst, Swissquote Bank.

Toward the end of the year, risk-taking improved as Donald Trump's presidential win boosted bets that he would deliver on his promises to ease regulations, cut taxes and raise tariffs to help domestic businesses.

His win also powered small-cap stocks. The Russell 2000 .RUT clinched a record high, setting it up for a rise of about 10% - its second consecutive annual gain. Banks .SPXBK also have benefited and are up more than 30% this year.

However, equities hit a rough patch in December, putting the S&P 500 on course for its biggest monthly decline since April, due to higher yields on Treasury notes at a time when equity valuations are stretched and the Fed is cautious.

The yield on the benchmark 10-year note US10YT=RR has come off its seven-month high and is at 4.5%, as markets see Trump's plans as inflationary, potentially slowing the pace of the Fed's rate cuts.

Traders expect the central bank to deliver its first rate cut of 2025 in either March or May, according to the CME Group's FedWatch Tool.

Trump's win has also proved to be a tailwind for crypto stocks as bitcoin prices BTC= touched $100,000.

MicroStrategy MSTR.O shares have more than tripled in value this year as it continues buying and holding bitcoin. The stock rose 3.3% on Tuesday, while Coinbase COIN.O and MARA Holdings MARA.O added 1% and 0.6%, respectively.

Other areas of the market, however, have witnessed annual declines, with materials stocks .SPLRCM down more than 2%, hurt by the economic woes in top metals consumer China.

(Reporting by Johann M Cherian, Pranav Kashyap and Purvi Agarwal in Bengaluru)

((johann.mcherian@thomsonreuters.com;))