NEW YORK (Reuters) - The U.S. stock market is off to a soaring start in 2024, as optimism over the economy and interest rate cuts has combined with exuberance about the business opportunity in artificial intelligence to stir up a potent cocktail for equities.

The benchmark S&P 500 has gained 10% so far this year with one trading day left in the first quarter, building on a surge that started at the end of 2023. The S&P 500 in late January hit its first record high in two years and hasn't looked back, setting more than a dozen highs without a significant pullback so far this year, on pace for its biggest first-quarter gain since 2019.

The tech-heavy Nasdaq Composite in late February also registered its first record high since November 2021.

Key to this year's gains has been confidence from investors that the economy is set for a "soft landing", in which inflation moderates but the economy avoids a severe downturn.

Sixty-two percent of fund managers saw a soft landing as the most likely outcome for the economy in the next 12 months, while only 11% projected a "hard landing", according to BofA Global Research's latest monthly survey published earlier in March.

A dovish Federal Reserve meeting earlier this month, in which the central bank kept its view of three interest rate cuts this year while upgrading its economic outlook, has also encouraged many investors.

Stocks have been able to defy a rise in Treasury yields, after rising yields were a pressure point for equities in 2023. The yield on the benchmark 10-year Treasury was last around 4.2%, up from 3.86% at the end of last year.

"As Q2 kicks off, we still see a more supportive near-term backdrop for risk-taking....," strategists at the BlackRock Investment Institute, which is overweight U.S. stocks, said in a note this week. "We think upbeat risk appetite can broaden out beyond tech as more sectors adopt AI, and as market confidence is buoyed by recent Fed messaging and broadly falling inflation."

Such optimism has helped drive up stock valuations. The S&P 500's forward price-to-earnings ratio has climbed to about 21, its highest level in more than two years, according to LSEG Datastream.

The stock market continues to be propelled by some of the megacap companies that led the way in 2023.

But after all of the "Magnificent Seven" tech and growth stocks posted huge gains in 2023, this year has seen them go separate ways.

Nvidia ( NVDA ) continues to shine, surging over 80% so far this year fueled by its gold-standard chips for AI. Meta Platforms is another big winner on the year, jumping about 40% with the Facebook parent issuing its first dividend in February.

Other megacaps have not fared so well. Apple ( AAPL ) shares have slipped 10%, with the iPhone maker hurt by pressure on its China business and from antitrust regulators. Tesla has tumbled about 28%, hit by worries about electric vehicle demand.

The Magnificent Seven were responsible for 40% of the S&P 500's year-to-date gain as of late last week, according to S&P Dow Jones Indices. That compares with a share of over 60% last year for the megacap group.

Other stocks have helped pick up the slack this year, indicating the rally is broadening.

Tech and communication services -- two sectors that house a combined five of the Magnificent Seven -- are the top S&P 500 sectors so far this year. But energy, financials and industrials are also outperforming the S&P 500.

Recent performance is "providing early signs that investors are beginning to look for opportunities outside Big Tech and in anticipation of lower interest rates later this year," Anthony Saglimbene, chief market strategist at Ameriprise, said in a market comment on Monday.

Investors have also been fixated to start the year on which companies stand to benefit from increasing use of AI.

Nvidia ( NVDA ) has been the poster child for AI enthusiasm, but a clutch of chipmakers and other tech stocks have also registered massive gains, including Super Micro Computer ( SMCI ) and Arm Holdings. In the latest sign of AI fervor, shares of chip firm Astera Labs have more than doubled since their initial public offering a week ago.