The S&P 500, a benchmark index representing major U.S. stocks, has recorded outstanding returns recently, providing investors with exceptional growth opportunities. Over the last three-year span ending in 2025, the index rose a cumulative 78%, greatly exceeding its long-term average annual return that typically hovers around 10%.
Breaking down recent performance, the years 2023 and 2024 delivered particularly strong gains, each surpassing the 20% mark. Even the relatively modest growth in 2025, at 16%, still outpaced historical averages, underscoring the index’s robust upward trajectory during this timeframe.
Historical Context of Consecutive Strong Gains
While the S&P 500 frequently posts annual returns above 20%, achieving such elevated returns consistently over three consecutive years is a rare occurrence. Historically, only two prior periods in modern market history reflect similar magnitude and duration of gains: the years surrounding 2021, and the late 1990s culminating in 1999.
The 2021 surge was marked by a 27% increase amid heightened market enthusiasm, notably driven by factors such as meme stock popularity. The preceding years of 2019 and 2020 also showed healthy growth at 16% and 29%, respectively, resulting in a cumulative three-year return just over 90% by the end of 2021. However, this rapid ascent was followed by a notable market drop of 19% in 2022 as inflation concerns weighed heavily on investor sentiment. Recovery ensued in subsequent years, supported in part by technological advancements and increased interest in artificial intelligence innovations like ChatGPT.
The earlier instance in the late 1990s saw similarly strong performance with the S&P 500 rising nearly 98% over the three years ending in 1999. This period was characterized by five consecutive years of annual gains of at least 19%, reflecting sustained bullish sentiment and market euphoria. Unfortunately, this rapid escalation preceded the dot-com bubble burst, which initiated three successive years of declines exceeding 10% annually starting in 2000.
Considering Investment Options Amid High Market Levels
Currently, the S&P 500 is trading near record highs, generating questions about potential future gains or risks. Some market analysts, such as those from UBS, speculate the index could continue climbing to levels like 7,500 by 2026. However, notable financial figures have raised cautionary notes, signaling that certain investments may lack long-term viability.
For investors pondering where to allocate capital in such conditions, there are multiple approaches beyond exiting the market entirely. Before making significant portfolio adjustments, it can be beneficial to reassess holdings: moving away from stocks perceived as overvalued toward those with more reasonable valuations may help mitigate downside exposure. Additionally, emphasizing dividend-paying stocks can offer income streams that support returns and provide some defense in the event of market downturns.
Market Timing Considerations and Lessons from History
The historical patterns of the S&P 500 highlight that even after periods of strong consecutive gains, markets can continue to experience rallies. For example, had investors decided to exit the market at the end of 1997 following three years of strong performance, they would have missed subsequent gains in 1998 and 1999. The difficulty of accurately timing market peaks is well acknowledged, even by the most successful investors.
Rather than attempting to fully sell out of equity positions following strong runs, a more measured approach involves adjusting exposure thoughtfully and focusing on quality investment options. Staying fully out of the market may lead to missed opportunities and significant long-term costs.
Notably, excepting the dot-com driven period, such sustained three-year bursts of exceptional gains in the S&P 500 have been infrequent, with some of the last comparable episodes occurring in earlier decades like the 1950s. These booms remain uncommon, emphasizing the importance of cautious and informed investment decisions.