The S&P500(SNPINDEX: ^GSPC) rose 26.3% (including dividends) in 2023, and is up 27.8% so far in 2024. That means it’s on track for consecutive annual gains of at least 20% for the first time since 1999.
If we go back to the founding of the S&P 500 in 1957, that has only happened six times. History suggests this could lead to another strong year in 2025, but the numbers are skewed by a period many investors would probably rather forget.
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The S&P 500 has delivered a compound annual return of 10.5% since 1957, putting its performance in 2023 and 2024 already significantly above average. Below, let’s dive into some historical data and explore what happened each time the index rose at least 20% in consecutive years.
The S&P 500 generated a return of 37.2% in 1975, and then a gain of 23.8% in 1976. This strong performance was followed by a return of 7.2%. loss in 1977.
The index generated a 21.5% return in 1981 and then a 22.5% gain in 1982. That occasion was followed by a modest 6.2% return in 1983.
The S&P rose 37.5% in 1995, followed by a 22.9% gain in 1996, a 33.3% gain in 1997, a 28.5% gain in 1998, and a 21% gain in 1999 .The series ended with a gain of 9.1%. loss in the year 2000.
In retrospect, that incredible five-year period between 1995 and 1999 became known as the dot-com technology bubble, when Internet companies increased in value without having the revenues, profits, or fundamentals to support their profits.
The dot-com bubble became a dot-com bust, with a brutal three-year losing streak for the S&P 500 between 2000 and 2002. seven years for the index to regain its all-time high from that period.
If we calculate the average S&P performance for 1977, 1983, 1997, 1998, 1999 and 2000, we arrive at an average return of 12.1%. That could be the profit we can expect in 2025, purely based on the historical data above alone.
As I said before, the data is heavy skewed by the dot-com era, an unprecedented time in the history of stock markets. But we’re currently in the midst of a new technological boom, this time powered by artificial intelligence (AI).
AI has played a key role in the S&P 500’s incredible gains in 2023 and 2024. Nvidia(NASDAQ: NVDA)for example, has added a whopping $3.1 trillion to its market cap over the past two years, primarily based on sales of its data center graphics processing units (GPUs) used to develop AI.
Nvidia is on track to generate $129 billion in revenue during the current fiscal year, which will be a nearly fivefold increase from two years ago. In other words, the AI boom is supported by tangible financial results, which was not the case with the dot-com bubble.
In reality, Morgan Stanley predicts four tech companies — Microsoft, Amazon, AlphabetAnd Metaplatforms – will invest a combined $300 billion in AI infrastructure by 2025 alone.
These four companies, plus Nvidia, represent 22.6% of the total value of the entire S&P 500, so it will be great for the broader market if that spending eventually pays off.
That said, the S&P is expensive right now. It trades at a price-to-earnings (P/E) ratio of 24.7, which is a 36% premium to its long-term average of 18.1 dating back to the 1950s. However, we are still well below the Internet-era peak of around 46, which suggests that valuations are high, but not necessarily irrational yet.
Given the valuation of the S&P 500, next year will have to be near perfect if investors are to see strong returns again. This means that corporate America will have to meet expectations when it comes to earnings growth, and macroeconomic conditions must remain supportive.
On the one hand, the US economy will be supported by falling interest rates. The Federal Reserve has already cut interest rates twice since September, and more are expected to come. On the other hand, the new Trump administration plans to impose significant tariffs on key trading partners such as Mexico and Canada, which could disrupt global trade and possibly even lead to inflation.
The last time President Trump was in office, he imposed tariffs on steel and aluminum imports from virtually every country in the world. Many countries (such as China) decided to retaliate with tariffs of their own, raising fears of a painful trade war that could have derailed the global economy.
That was a big reason why the S&P 500 nearly entered bear market territory in 2018. So if tariffs are on the agenda once President-elect Trump reenters the White House in January, the stock market could be in for a rough ride. by 2025.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
The S&P 500 is on track to do something it hasn’t done since 1999, and here’s what it could mean for 2025. originally published by The Motley Fool
