Stocks may not gain 20% again this year — but history suggests they won't turn negative

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What happens after stellar years, historically

The stock market has turned lower for multiple trading sessions in a row but history favors the long-term optimists. 

The S&P 500 is coming off its 18th best finish since 1950 with a 23.3% return in 2024. 

In the last five decades, the S&P 500 has gained more than 20% in a year on fifteen separate occasions. The average annual return of those years hovers at 27.3%.

In the 12 months after each of those strong performances, the index’s average return hovers at 14.1%, according to data from LPL Financial . 

Only three times has the S&P 500 turned negative in the year after gaining 20% or more.

If that pattern holds, then, the benchmark index should fare well in 2025.

At the very least, history suggests there are better odds of it going up than down.

Indeed, strategists across Wall Street remain bullish for 2025 with an average forecast of a 14% gain for the S&P 500, according to the 16 firms tracked by Opening Bell Daily. 

The Magnificent Seven stocks’ valuations continue to balloon, and analysts expect earnings growth to improve for names outside that batch, too.

David Miller , chief investment officer for Catalyst Funds, sees Nvidia, Meta, Apple and other tech giants leading the way in profits and earnings for the foreseeable future. 

“Monopolies have historically been the best businesses to own, and the S&P 500 is now dominated by monopolies,” Miller said. 

To be sure, risks still loom, history be damned. Odds of resurgent inflation — and so fewer Fed rate cuts — are still on the table, and president-elect Trump’s tariffs remain a wild card. 

Bank of America’s Sell Side Indicator, a contrarian signal that tracks strategists’ average recommended allocation to stocks, climbed in December to its highest level since 2022. 

The indicator “suggests that the 20%+ annual returns we've seen over the past two years are likely behind us, but still points to a relatively healthy price return of 10% over the next 12 months,” wrote BofA strategist Tyson Dennis-Sharma in a note Thursday, adding that euphoria remains elevated among investors.

The SSI is one point away from triggering the “sell” signal, which it last touched in February 2021, less than a year before the stock market peaked. 

For what it’s worth, the S&P 500 has only gained 20% for three consecutive years once before, to close out the 1990s dot-com bubble. 

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