The financial markets are poised to achieve a significant milestone in 2024. Should the S&P 500 wrap up the year with an increase exceeding 20%, it would be only the seventh occasion across four separate intervals in the last century where the index has experienced successive years of remarkable gains. In 1927 and 1928, the market surged by 31% and 38%, respectively.
This index also recorded consecutive 20%-plus gain years in 1935 and 1936, as well as in 1954 and 1955, and from 1995 through 1998. However, historical data presents conflicting indicators regarding the outcome after two years of substantial profitability. Following the remarkable uptick in 1927 and 1928, the market faced a decline of 12% in 1929, heralding the onset of the Great Depression.
In the ensuing three years, the index would crash by 90%. A drastic downturn also followed the substantial gains recorded in 1935 and 1936, with the market dropping nearly 40% in the subsequent year. The 1930s turned out to be a challenging era for investors and the U.S. economy.
Conversely, after the bullish market of 1954 and 1955, the index managed to achieve a modest 3% increase the following year. It wasn’t until four decades later that the market experienced another pairing of years with 20% gains.
S&P 500’s historical performance review
Between 1995 and 1998, the S&P 500 enjoyed a phenomenal streak, yielding gains of 34%, 20%, 31%, and 26%. The sequence almost continued into a fifth year in 1999 with a 19.5% return; however, the market ultimately collapsed in 2000 when the Dot-Com bubble burst. The index faced three consecutive years of losses from 2000 to 2002.
As investors direct their gaze toward 2025, a majority of analysts on Wall Street anticipate the S&P 500 to achieve another double-digit percentage increase, although viewpoints vary on whether it will surpass 20%. Favorable market dynamics, including decreasing inflation and a strong labor market, bolster an optimistic forecast. Goldman Sachs foresees a 2.5% growth in U.S. GDP for the coming year, while President-elect Donald Trump is anticipated to implement growth-oriented strategies such as corporate tax reductions.
Nonetheless, numerous factors could hinder the market’s upward movement. Geopolitical uncertainties, trade conflicts, a resurgence of inflation, climbing interest rates, a potential economic downturn, and fiscal issues could all influence market performance. While the market may continue its upward trajectory, similar to what was observed in the late 1990s, history illustrates the challenges associated with forecasting market fluctuations after two years of robust growth.
The only relatively consistent trend is the long-term ascent of the S&P 500. As the year 2025 nears, investors ought to stay alert and ready for a spectrum of potential developments.
