The S&P 500 index has recently undergone a remarkable period of growth, producing total returns of 26.3%, 25%, and 17.9% in 2023, 2024, and 2025 respectively. Achieving over 15% returns in three consecutive years is an uncommon feat, influenced by a unique set of market conditions and investor sentiment.
This impressive rally occurred following the difficult market conditions of 2022, a year when the S&P 500 and long-term Treasury bonds both declined more than 20% from their highs. A significant factor that contributed to the rebound was a deceleration of inflationary pressures alongside the conclusion of a stringent Federal Reserve interest rate tightening cycle, which restored investor confidence towards the end of that year.
Entering 2023, investor optimism was further bolstered by improved market conditions and the emergence of the artificial intelligence sector as a critical growth theme. Technology companies, particularly the so-called "Magnificent Seven," led the charge, driving substantial gains in equity markets.
Over the last century, sustained triple-year gains surpassing 15% have been infrequent. Apart from the current period, only four other times have there been comparable stretches:
- 2019 to 2021: The S&P 500 returned 31.5%, 18.4%, and 28.7% respectively. Despite a sharp pandemic-induced drop in 2020, the index fully recovered by August and advanced to reach new highs by the year’s end.
- 1995 to 1999: A bull market driven by the technology boom yielded annual returns of 37.6%, 23%, 33.4%, 28.6%, and 21%. This era culminated in the dot-com bubble burst, which led to severe losses in the Nasdaq 100 and the S&P 500 retracing to earlier levels.
- 1950 to 1952: Post-World War II economic recovery saw the S&P 500 climb 31.7%, 24%, and 18.4%, reflecting the transition from wartime manufacturing to consumer goods production and a sustained expansion phase.
- 1942 to 1945: Following several years of market declines, industrial production ramped up during the war years, and the S&P 500 rose 20.3%, 25.9%, 19.8%, and 36.4%, demonstrating a strong turnaround.
Examining the market trajectory after these bull runs reveals varied outcomes:
- Post-1940s: After the wartime rally, the market experienced modest returns, with a moderate decline of about 8% in 1946, followed by low single-digit gains in the subsequent two years.
- Early 1950s setback and recovery: A 15% correction and a brief recession occurred in 1953, but this was succeeded by significant advances of 52% and 31% in 1954 and 1955.
- Dot-com bubble aftermath: Following the technology-driven surge, the S&P 500 endured a prolonged bear market nearly spanning three years, with the index losing almost half its value. The Nasdaq 100 suffered even more severe losses.
- Post-pandemic bull market: After three years of robust growth ending in 2021, rising inflation and the Federal Reserve’s aggressive policy response contributed to a downturn affecting both equities and bonds.
These historical patterns suggest that extended periods of sizable returns often precede market downturns, corrections, or intervals of low growth. While bull markets occasionally extend beyond three years, prevailing economic indicators indicate this extension is less probable for 2026.
For investors, this context encourages a shift towards more cautious positioning. Diversification strategies incorporating value-oriented equities, international exposure, fixed income, and commodities such as precious metals may provide a buffer against volatility endemic to growth- and technology-focused portfolios.
Ultimately, history implies the current favorable cycle is nearing its conclusion. Preparedness and a balanced approach may be essential to navigate the potential challenges ahead without undue risk exposure.