A stellar year on Wall Street is propelling the biggest rally since 2019 in the MSCI World Index of developed-market equities, pushing the gauge closer to its record high and leaving emerging-market peers trailing far behind.

The global benchmark is now just 3% from its all-time peak after climbing 21% this year, while the MSCI Emerging Markets Index is up 4%. The U.S. stock market has been a major driving force, with the S&P 500 also a few points shy of its highest-ever level and the Nasdaq 100 on track for its best annual performance since 1999.

The U.S. is home to 28 of the 30 biggest contributors to the MSCI World benchmark’s advance—including Apple Inc. and Nvidia Corp. Novo Nordisk A/S breaks the U.S. shutout at 14th spot, thanks to the frenzy around weight-loss drugs, while Toyota Motor Corp. takes 29th position. 

Developed-market stocks have added almost $11 trillion to the value of the world index as economies held up better than expected and optimism grew that central banks will pivot to monetary easing. Enthusiasm around artificial intelligence ignited gains in U.S. stocks in particular, boosting the likes of Nvidia and Microsoft Corp. Japanese equities also soared, lifted by the return of inflation and as a weaker yen supported the earnings of heavy-weight exporters.

Positive sentiment toward U.S. stocks should carry on next year, with strategists from Bank of America Corp., Goldman Sachs Group Inc. and Oppenheimer Asset Management among those seeing the S&P 500 index at 5,000 points or higher over the next 12 months as interest rates fall and “U.S. exceptionalism” continues.

That said, sentiment and positioning might have turned too bullish for now, with RBC Capital Markets and Citigroup Inc. strategists warning of the risk of a near-term pullback. Some technical indicators are also flashing warning signs after the rally since late October, with the S&P 500’s relative strength index showing the benchmark is now the most overbought since September 2020.

“The market does not want to listen, even with Fed speakers pushing back,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “Over the last month, the market has priced a very aggressive cutting cycle and assumes that we are going to see a further decline in inflation, while only a minor deterioration in the growth outlook. So economic data needs to come ‘just right.’ Anything that is too hot or too cold is going to cause market upset.”

This article was provided by Bloomberg News.