In financial markets, certain events occur with such infrequency that they naturally draw significant attention, such as witnessing a total solar eclipse or achieving a hole-in-one in golf. Recently, the S&P 500 index has experienced one of these scarce occurrences, having recorded three straight years of returns above 16%, a feat completed at the close of 2025 with a 16.4% gain. This phenomenon is notable due to its rarity and potential implications for investors looking towards 2026.
The S&P 500's performance following a 23.3% increase in 2024 and a 24.2% rise in 2023 culminated in this third consecutive year exceeding the 16% threshold. Examining data over a 97-year span, such a three-year run of nominal gains surpassing 16% has been documented only five times. While the S&P 500 in its current 500-stock form has existed since 1957, its predecessor, the S&P 90 Stock Index, originated in 1928, offering a broad historical framework.
The initial appearance of this three-year streak took place during the mid-1990s amid the dot-com boom, specifically from 1995 to 1997. This period ushered in additional streaks, including consecutive years from 1996 to 1998 and 1997 to 1999 with returns over 16%. After these closely spaced events, the market did not witness another such streak until two decades later, from 2019 to 2021, when the index returned 28.9%, 16.3%, and 26.9% respectively. The most recent cycle, comprising 2023 to 2025, comprises the fifth such occurrence.
Historical outcomes after these three-year periods of strong returns have been varied. In some instances, the positive momentum persisted; following the 1995-1997 sequence, the S&P 500 surged an additional 26.7% in 1998. Similarly, after the 1996-1998 streak, a 19.5% rise occurred in 1999. However, the optimism faded after the 1997-1999 run, with the market experiencing a 10.1% contraction in 2000, initiating a prolonged downturn.
More recently, after the substantial gains from 2019 through 2021, the market faced headwinds as the Federal Reserve increased interest rates beginning in 2022 to combat rising inflation. This policy shift led to a 19.4% decline in the S&P 500 that year, underscoring the potential volatility following such streaks.
Looking ahead to 2026, the historical record does not offer clear guidance. While previous streaks in the 1990s coincided with transformative trends like the rise of e-commerce, which helped fuel market growth, the current landscape features the emergence of artificial intelligence technologies, particularly generative AI, as a possible driver of gains. Should companies demonstrate substantial returns from AI investments, there is potential for continued market strength.
Conversely, valuations present a notable caution. The S&P 500 Shiller CAPE ratio—a metric used to assess market valuation relative to historical norms—is currently at levels not seen since before the 2000 market downturn. High valuations have historically presaged corrections, suggesting risk that fundamental market metrics could lead to underperformance in the coming year.
In light of these mixed signals, investors may find strategic value in focusing on long-term trends rather than short-term fluctuations. Notably, the S&P 500 has delivered positive total returns in every rolling 20-year period recorded to date, a record that supports patient, long-duration investment horizons.