The S&P 500 is on track to achieve another significant milestone, with projections indicating a possible increase of 10% or more. As of December 15, the index had risen 16% year-to-date, positioning it for a strong year-end close. This gain would mark a notable continuation of the trend, as it would be the third consecutive year of double-digit growth for the index, following impressive increases of 24.2% in 2023 and 23.3% in 2024. In total, the S&P 500 has grown by 77.5% since the end of 2022.
Achieving three straight years of double-digit gains is a rarity in market history. Since a downturn in 2022, the broader stock market has experienced what can be described as a 16-year bull run, albeit not without exceptions. Since 1952, the S&P 500 has achieved 10% or more gains for three consecutive years only twice before: during the dot-com boom from 1995 to 1999, the bullish market of 2012-2014, and the pandemic recovery period from 2019 to 2021.
To highlight past performances, historical gains for these periods include:
1995-1999:
- 1995: 34.1%
- 1996: 20.3%
- 1997: 31%
- 1998: 26.7%
- 1999: 19.5%
Total: 219.9%
2012-2014:
- 2012: 13.4%
- 2013: 29.6%
- 2014: 11.4%
Total: 63.7%
2019-2021:
- 2019: 28.9%
- 2020: 16.3%
- 2021: 26.9%
Total: 90.2%
While these high-performance years have resulted in remarkable financial gains, they also prompt speculation about the market’s direction in subsequent years. Historical trends suggest that, following these stellar runs, next-year performances can vary significantly. For instance, during the dot-com boom, stocks continued their upward trajectory, while in later streaks, such as 2015 and 2022, the market experienced minor declines and a significant bear market, respectively.
The ongoing AI surge is widely viewed as a primary catalyst behind the stock market’s trajectory over the last three years, particularly following the release of OpenAI’s ChatGPT in late 2022. Notably, companies such as Nvidia have soared, with its stock price increasing nearly tenfold, reflecting the broader excitement surrounding AI advancements.
Despite lingering concerns about a potential AI bubble, industry leaders, including Nvidia’s CEO Jensen Huang, have indicated that the momentum surrounding AI adoption is strong and poised for further acceleration.
Investors need to approach stock market outcomes with both optimism and caution. Historical analysis provides insights, but it is essential to avoid becoming overly reliant on past performance as a predictor of future results. Various factors influence market conditions, including Federal Reserve policy decisions, economic health, AI demand sustainability, corporate profits, and changes in public policy.
While high valuations may suggest a need for caution, the possibility of another successful year in 2026 remains viable given favorable economic and market conditions. However, continued double-digit growth may become increasingly challenging as earnings growth struggles to keep pace with market valuations.
Ultimately, while the future may hold uncertainties, the long-term history of the S&P 500 as a wealth-generating vehicle is evident, having produced an average annual return of around 9% when dividends are reinvested. For investors, the best strategy remains staying invested, irrespective of short-term fluctuations or the fate of the AI boom.
