In a few days, investors will wrap up another solid year for the U.S. stock market.
Despite volatility that nearly sent the index skittering into bear-market territory in April, the S&P 500 index SPX was on track to finish 2025 with a respectable 17.8% advance as of Friday's close, before factoring in dividends, FactSet data show.
With three trading sessions left in the year, a third straight year of 20% returns is within reach. For the S&P 500, back-to-back-to-back returns of 20% or greater have happened only once before - during the stretch of strong tech-driven returns that began in 1995, and which culminated in the bursting of the dot-com bubble in early 2000.
Even if the index falls short of that milestone, a third straight year of double-digit returns would still make for a remarkable accomplishment. Since 1949, there have been only four instances when the S&P 500 has rallied by 10% or more for at least three consecutive years, according to Dow Jones Market Data.
But this is where history diverges with expectations: After such a strong stretch, an analysis by Dow Jones Market Data shows that the average return for the following calendar year was just 4.6%. That's well below 9.5%, the average for all years between 1950 and 2024.
Yet analysts across Wall Street expect another year of solid, if slightly less robust, returns in 2026. According to forecasts from analysts collected by FactSet, the average bottom-up S&P 500 price target for year-end 2026 is just shy of 8,000. That means these analysts have penciled in a yearly gain of 15.9%, excluding dividends. The S&P 500 finished at 6,929.94 on Friday, per FactSet data.
To be sure, this bottom-up number is notably more optimistic than the median from investment-bank forecasts collected by MarketWatch, which stands at 7,500. That would represent an advance of about 9% from Friday's close of about 6,930 - roughly in line with the S&P 500's average calendar-year return, between 1950 and 2024, of 9.5%. Of the official forecasts collected by MarketWatch, only the most bullish equity strategists on Wall Street expect the index to finish next year at 8,000.
Wall Street analysts often overestimate stock-market returns for the following year, according to FactSet's John Butters. But after three strong years of gains, some believe the bull market might be due for a breather.
"We're looking at three years of returns right around 20%, and that's way above average," said Jose Torres, senior market economist at Interactive Brokers, during an interview with MarketWatch. "We could be due for a flat year in 2026."
One of the most prevalent arguments for cooler returns in the year ahead is rooted in the notion that the market has become too heavily dependent on popular artificial-intelligence trades. For the past three years, excitement about the potential for AI to transform the global economy has powered much of the gains in the U.S. stock market.
As a result, the S&P 500 has become more lopsided in favor of its biggest constituents. The "Magnificent Seven" - an elite group of megacap tech stocks that includes Nvidia (NVDA), Tesla $(TSLA)$, Microsoft $(MSFT)$, Amazon.com (AMZN), Meta Platforms (META), Alphabet $(GOOGL)$ $(GOOG)$ and Apple $(AAPL)$ - now accounts for 35% of the S&P 500's value, according to Howard Sliverblatt, senior index analyst at S&P Dow Jones Indices.
As Torres pointed out, another potential difficulty lies in the fact that next year is a midterm election year - and midterms often coincide with below-average returns for stocks.
Another detail that might give some investors pause: The S&P 500 has risen by more than 80% since the start of 2023, according to Dow Jones Market Data. That puts it on track for its best three-year return since 2021, when it gained 90.1%. In other words, the last time stocks powered higher for three years in a row, investors were forced to confront a punishing bear market in 2022 that resulted in the worst year for the S&P 500 since 2008, according to FactSet data.
The case for another strong year
A team of analysts at Fundstrat Global Advisors disagrees with the idea that U.S. stocks look destined to experience a slower pace of appreciation in 2026.
In a report shared with MarketWatch, they looked at periods where equity indexes from around the world gained 20% or more for three consecutive years. They found 12 examples - including the Nasdaq-100 NDX from 1995 to 1997, and the S&P 500 during the same period. During five of the 12 instances, the indexes went on to see even stronger performance during the fourth year, helping to lift the average performance in that year to 12%, Fundstrat found.
Another thing: During the 12 examples mentioned above, the median three-year return was 155%. The S&P 500's current run is still well below that, suggesting it may have room to keep powering higher.
"Just because we've had three years of extraordinary gains doesn't mean the fourth year can't be gangbusters also," said Hardika Singh, an economic strategist at Fundstrat.
Massive spending on AI data centers is set to continue, which should help boost corporate earnings not just in the technology sector but in other areas as well, like industrials and materials stocks, Singh noted. Lately, healthcare stocks, materials and financials, which struggled earlier in the year, have leapt higher - signaling that the stock-market rally has started to broaden out.
Performance has also started to pick up outside of the S&P 500, another encouraging sign that the stock-market rally could carry on. The small-cap Russell 2000 index RUT has risen by more than 13.6% this year through Friday's close.
And international stocks have also raced ahead this year; the MSCI All Country World ex-USA Index ACWX has risen by 29.8% this year, on track for its biggest gain since 2009, Dow Jones Market Data showed. The international index is on track to beat the S&P 500 by the widest margin since 2009.
U.S. stocks finished marginally lower on Friday, but still locked in another week of gains. The S&P 500 climbed 1.4% on the week, while the Nasdaq Composite Index COMP and the Dow Jones Industrial Average DJIA each rose 1.2%.
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