Investors are witnessing remarkable growth in the stock market as 2025 unfolds, with the S&P 500 index surging over 14% year to date. This robust performance follows two astonishing years, where the index boasted returns of 24% in 2023 and 23% in 2024. For those who invested in an S&P 500 index fund, such as the Vanguard S&P 500 ETF, at the market’s low in October 2022, their capital has effectively doubled in just a little over three years.
As the market approaches its all-time highs, questions arise about whether this upward trajectory can continue into 2026. While the market is known for its forward-looking nature, historical data can offer valuable insights for savvy investors. Ignoring these trends, especially in the context of the stock market’s cyclical nature, could lead to missed opportunities.
Historically, stocks have shown resilience, tending to rise more frequently than they decline. Since Standard & Poor’s began tracking stock performances in 1926, the S&P index has recorded annual growth approximately three out of four years. This statistic might make investors consider the likelihood of a pullback, especially after three consecutive years of gains. Over the last century, the average total return for a four-year period on the S&P index has been about 55%. Given the strong recovery since the lows of October 2022, one might reason that a reversion to the mean is due.
However, this perspective may overlook a crucial detail: the stock market’s tendency to defy averages. The S&P index’s average annual return sits around 12%, with only a handful of years recording returns between 9% and 15%. Instead, the market often experiences extended periods of growth, punctuated by brief yet sharp corrections. Notably, historical data reveals that of the 37 instances where the S&P index experienced three consecutive years of growth since 1926, 24 of those instances—representing 65% of the time—saw a fourth consecutive year of gains.
While long-term trends can be somewhat predictable based on historical performance, predicting short-term market movements remains a challenging task. Nevertheless, the data suggests a higher probability of continued growth into 2026 rather than stagnation.
Conversely, some analysts argue that the current market appears historically expensive, raising concerns about a potential downturn. A notable focal point is the fear of an artificial intelligence (AI) bubble. Major tech firms are significantly investing in AI initiatives, with estimates indicating that such capital expenditures contributed substantially to U.S. GDP growth in early 2025. The crux of the argument is that addressing the AI bubble—a scenario reminiscent of the dot-com crash—could trigger a significant decline in stock values.
However, it’s important to remember that timing the market is fraught with difficulty. The dot-com bubble burst in 2000, yet it followed nine continuous years of solid gains, including five years with returns surpassing 20%. Investors who exited the market at the end of the bull run in the late ’90s would have missed out on an additional 55% increase in the S&P 500.
The historical context suggests that betting against the stock market is often unwise. Over the long haul, stocks tend to rise, and the likelihood of sustained growth following three strong years is high. As Peter Lynch, a renowned investor, famously stated, “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
In summary, the stock market has shown that it can indeed continue its upward movement into 2026, but the future remains uncertain. While risks and concerns exist, the historical data provides a strong case for optimism.
