Historical Data Shows S&P 500 Gains Often Slow After Extended Multi-Year Rallies.

In late December 2025, I wrote a blog post to reflect on the various factors that influence equity market returns. One of the simplest ways to look at historical performance, however, is to assume that double-digit gains cannot continue indefinitely.

After three consecutive years of strong returns for the S&P 500:

• 2025: +17.88%
• 2024: +24.87%
• 2023: +26.37%

it would be reasonable to expect that a typical “reversion to the mean” year for the index might deliver single-digit performance, either slightly positive or slightly negative.

One of the more interesting developments in 2025 was the resurgence of previously underperforming asset classes, particularly international equities (and even bonds), along with emerging market stocks. These so-called non-correlated trades had been largely stagnant for years, yet international equities posted their strongest performance since 2006 during 2025.

However, tensions involving Iran have significantly altered the investment outlook for 2026, disrupting the rotational trade that had appeared logical—at least before the recent airstrikes.

The real challenge now is distinguishing between stocks, sectors, and asset classes that could face genuine long-term damage from the geopolitical conflict and those that are simply undergoing a normal correction driven by news headlines.

Earlier, the “Liberation Day” correction from late January 2025 to early April 2025 resulted in roughly a 20% peak-to-trough decline. That episode was the last time investors experienced a meaningful surge in market fear and negative sentiment.

Looking back at history, the last time the S&P 500 produced returns similar to those seen from 2023 to 2025 occurred during the following stretch:

• 2021: +28.75%
• 2020: +18.2%
• 2019: +31.8%

Aside from 2019, those gains were heavily influenced by accommodative monetary policy and the era of near-zero interest rates. But it is worth noting what happened next: in 2022, the S&P 500 declined by -18.11%.

In short, some investors describe market behavior as a “sequencing of returns.” The broader takeaway is that after two or three years of strong equity gains, markets often transition into a period where returns become more modest—typically in the single digits. This is not a forecast, but historical patterns are worth considering.

At the moment, the U.S. equity market may need a significant spike in fear to establish a tradable bottom, particularly following the recent surge in crude oil prices. As always, this commentary is not investment advice but simply an opinion. Past performance does not guarantee future results. Investors should assess their own tolerance for portfolio volatility and make adjustments accordingly.

Thank you for reading.

Sources: Brian Gilmartin