The S&P 500 is close to a third straight year of total returns of 15% or more, a feat achieved only nine times since 1926. History gives no clear signal for what follows. Valuations and a concentrated index make this run different from earlier ones.
The S&P 500 is up roughly 12% year-to-date, with a total return approaching 14%. That puts the index within striking distance of a third consecutive year of total returns of 15% or more. Only nine times since 1926 has it managed that.
Past streaks ended in both directions
The first three-year streak ran from 1942 through 1944. The index soared in 1945 with a total return of 36%. However, its predecessor declined by 8% in 1946.
Later streaks ran from 1949 to 1951 and from 1950 to 1952. In 1953, the index's total return slipped by nearly 1%. The next streak came from 1995 to 1997, when the index generated total returns of 22% or more each year, and momentum carried into 1998 and 1999.
The dot-com bust ended that run. The index did not string together three 15%+ years again until 2019 through 2021, and a bear market in 2022 ended it. The ninth streak ran from 2023 to 2025.
The year after a streak went both ways. The S&P 500 delivered a positive return after five of the periods and a negative return after the other four, assuming the index doesn't plunge before the end of this year.
Why this run differs from the 1990s
Some investors see parallels with the mid-1990s, when the internet was in its early days, and argue artificial intelligence (AI) is also in its early stages. Others see the end of the dot-com boom instead. The S&P 500 Shiller CAPE ratio is at its highest level since early 2000.
The index is also concentrated. The top 10 companies, which include all the so-called "Magnificent Seven" stocks, account for more than 39% of the index's weight. Earnings growth is exceptionally strong too, though much of it comes from only a few companies.
The source's takeaway is to prepare for any outcome, stay selective with a focus on valuation, and stay patient, since the S&P 500 has always delivered positive total returns over the long run.
Source: The Motley Fool
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