The S&P 500 is putting the finishing touches on what has been another exceptional year for American equities. With the broad market index up approximately 17% year-to-date and just two trading sessions remaining before markets close for New Year's, Wall Street is celebrating a rare trifecta: three consecutive years of double-digit gains.

This achievement places the current rally in elite historical company. Since 1950, the S&P 500 has averaged roughly 9.3% annual returns. Stringing together three years of gains well above that average is an unusual accomplishment—and one that has investors debating whether the good times can continue into 2026.

The Numbers Behind the Rally

The 2025 performance, while strong, actually represents a moderation from the torrid pace of the previous two years. In 2023, the S&P 500 surged approximately 24% as markets rebounded from 2022's sharp decline. In 2024, the index gained roughly 23% as the "Magnificent Seven" tech stocks drove markets to new heights.

This year's 17% advance, while impressive by historical standards, reflects a more balanced market environment. The Nasdaq Composite has risen approximately 22% year-to-date, outperforming the broader market thanks to continued strength in artificial intelligence-related stocks. Meanwhile, the small-cap Russell 2000 has gained around 13%, continuing its multi-year underperformance relative to large caps.

Sector Performance

The technology sector once again led the charge, gaining approximately 24.5% in 2025. This marks its third consecutive year of strong performance, driven by the seemingly insatiable demand for AI infrastructure and services.

But the rally has been broader than in previous years. Financial stocks have performed well as banks benefit from a steeper yield curve and robust trading activity. Industrial companies have gained as reshoring trends and infrastructure spending create new opportunities.

What's Driving the Gains

Several factors have combined to push equities higher throughout 2025:

Earnings Growth: Corporate profits have continued to expand, particularly among the largest companies. The "Magnificent Seven"—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—have collectively seen earnings grow by double digits, justifying much of their valuation expansion.

Fed Rate Cuts: The Federal Reserve's pivot to cutting interest rates, which began in late 2024, continued through 2025. The central bank has reduced its benchmark rate by 1.75 percentage points from its peak, easing financial conditions and supporting equity valuations.

Economic Resilience: Despite persistent predictions of recession, the U.S. economy has continued to grow at a moderate pace. Consumer spending has remained robust, unemployment has stayed relatively low, and business investment has held up better than expected.

The Bull Case for 2026

Wall Street strategists remain generally optimistic about the year ahead, though their targets vary widely. The consensus forecast calls for the S&P 500 to reach approximately 7,000-7,500 by the end of 2026, implying mid-to-high single-digit returns from current levels.

Bulls point to several supportive factors:

  • Continued earnings growth, particularly as AI adoption spreads beyond the tech sector
  • Potential for further Fed rate cuts if inflation continues to moderate
  • Strong corporate balance sheets and ongoing share buyback activity
  • Possibility of pro-growth policy changes from the new administration

The Bear Case

Not everyone is convinced the rally can continue. Some analysts point to warning signs that historically have preceded market corrections:

Valuation Concerns: The S&P 500 trades at approximately 22 times forward earnings, well above its historical average of around 16 times. Such elevated valuations have historically been associated with below-average returns over subsequent years.

Concentration Risk: The market's reliance on a handful of mega-cap stocks remains extreme. The top 10 stocks now represent over 35% of the S&P 500's total market capitalization—a level of concentration that creates vulnerability if any of these leaders stumble.

Fed Uncertainty: The Federal Reserve has signaled a slower pace of rate cuts ahead, and any resurgence in inflation could force the central bank to halt or even reverse its easing cycle.

Historical Perspective

History offers mixed guidance on what typically follows extended bull runs. After previous three-year winning streaks, the S&P 500 has sometimes continued higher—but other times has experienced significant corrections.

The longest winning streak in modern market history was nine consecutive years of gains from 1991 to 1999, which ended with the bursting of the dot-com bubble. More recently, the index posted gains in 2012 through 2017, a six-year run that eventually gave way to the volatility of 2018.

What Investors Should Consider

For individual investors, the key question isn't whether to time the market's next move—a notoriously difficult task—but rather whether their portfolio is appropriately positioned for various scenarios.

Diversification remains the best defense against concentration risk. While the mega-cap tech stocks have driven recent returns, a well-balanced portfolio should include exposure to other sectors, smaller companies, international markets, and bonds.

Investors who have benefited from the rally should also consider rebalancing. After three years of strong equity returns, many portfolios have drifted toward overweight equity positions relative to their target allocations.

The Bottom Line

The S&P 500's third consecutive year of double-digit gains is a testament to the resilience of American business and the power of technological innovation. Whether this momentum can continue into 2026 depends on factors ranging from corporate earnings to Federal Reserve policy to geopolitical developments.

What's certain is that investors who stayed the course through the volatility of recent years have been rewarded handsomely. The lesson, as always, is that time in the market matters more than timing the market—even when the headlines suggest otherwise.