The numbers are remarkable by any standard. The S&P 500 gained 24.2% in 2023, followed by 23.3% in 2024, and then another 17.9% in 2025. Three consecutive years of gains exceeding 17%—a "three-peat" that places the current bull run among the most powerful in Wall Street history.

But with great returns come great questions. Is this the sign of a market firing on all cylinders—or a bubble inflating toward inevitable correction? What does history tell us about what typically follows such extraordinary performance? And how should investors position for 2026?

The Historical Context

Back-to-back years of 20%+ gains are themselves rare. They've occurred just nine times in the past 100 years. Three consecutive years of such performance is rarer still—happening only a handful of times in 155 years of market data.

The most memorable instance: 1995 through 1999, when the S&P 500 delivered five consecutive years of gains exceeding 19%. That streak, of course, ended with the bursting of the tech bubble and three consecutive years of double-digit losses.

What Followed Previous Streaks

The historical record offers mixed guidance:

  • 1927-1929: Three years of exceptional gains ended with the 1929 crash and Great Depression
  • 1942-1945: War-era bull market gave way to a modest 8% decline in 1946 as the economy normalized
  • 1954-1956: Strong post-war gains tapered to a modest 2.6% return in 1957
  • 1995-1999: The dot-com boom ended with three consecutive years of losses totaling 40%

The pattern is clear: multi-year winning streaks eventually end. What's less clear is whether they end with a whimper or a bang.

The Valuation Warning

One metric that has historically predicted trouble after extended bull runs is the Shiller P/E ratio, also known as the cyclically adjusted price-to-earnings ratio (CAPE). This measure, which smooths earnings over a ten-year period, currently sits above 35—a level exceeded only during the dot-com bubble and briefly in late 2021.

There have been only three instances in 155 years where the Shiller P/E topped 40: 1929, 2000, and 2021. In each case, significant drawdowns followed within 24 months.

"The valuation backdrop heading into 2026 is concerning. We're not predicting a crash, but the margin for error is slim. Any negative surprise—geopolitical, economic, or corporate—could trigger a meaningful correction."

— Chief market strategist at a major asset manager

What's Different This Time

Bulls argue that several factors distinguish the current environment from previous bubble peaks.

Earnings Are Stronger

Unlike the late 1990s, when valuations were built on projected future profits that often never materialized, today's market leaders are generating enormous real earnings. Apple, Microsoft, Nvidia, and Alphabet have combined profits exceeding $300 billion annually. The "Magnificent Seven" aren't just promises—they're profit machines.

Balance Sheets Are Healthier

Corporate America entered 2026 with strong balance sheets. Many companies used the low-rate environment of 2020-2021 to refinance debt at favorable terms. Bankruptcy rates remain low. The credit markets show few signs of stress.

The Fed Has Pivoted

Unlike 2000, when the Federal Reserve was actively raising rates to cool an overheating economy, today's Fed has cut rates and signaled further easing if needed. The central bank backstop that supported markets through previous rough patches remains in place.

AI Is Real

The artificial intelligence boom driving much of the market's gains isn't pure speculation. Companies are making massive capital investments. Productivity improvements are beginning to appear in economic data. Whether AI ultimately lives up to the hype remains uncertain, but it's not the vaporware of the dot-com era.

The Bear Case

Bears counter with their own compelling arguments:

Concentration Risk

A handful of mega-cap technology stocks are responsible for the vast majority of index gains. The equal-weighted S&P 500—which treats every stock the same regardless of size—has significantly underperformed the cap-weighted version. When a few stocks carry the market, vulnerability increases.

Sentiment Is Extreme

Investor surveys show the highest levels of bullish sentiment since 2000. When everyone is already bullish, there's no one left to buy. Contrarian indicators suggest caution.

Geopolitical Risks Abound

From the Venezuela intervention to escalating tensions with China over Taiwan, the geopolitical landscape is more volatile than the calm market would suggest. Any escalation could trigger rapid risk-off moves.

The Fed May Disappoint

Markets are pricing in multiple rate cuts in 2026. If inflation proves sticky and the Fed can't deliver, the valuation support from expected easing could evaporate.

What History Actually Suggests

When examining years following back-to-back 20%+ gains, the data shows:

  • Average return: 10.6% (slightly above the historical average of 9.3%)
  • Positive years: 81% of the time
  • Median return: approximately 12%

The statistics are more reassuring than the dramatic crash examples might suggest. Most of the time, strong markets beget continued strength—until they don't.

How to Position for 2026

Given the uncertainty, financial advisors generally recommend a balanced approach:

1. Stay Invested, But Diversify

Trying to time market tops is notoriously difficult. The S&P 500 could gain another 20% before any correction occurs. Missing that upside while waiting for a crash would be costly. Better to stay invested but ensure diversification across sectors, geographies, and asset classes.

2. Consider Rebalancing

After three years of outsized stock gains, many portfolios have drifted far from their target allocations. A portfolio that was 60% stocks and 40% bonds in 2023 might now be 75/25 if not rebalanced. Taking some chips off the table through rebalancing is prudent without making a market call.

3. Quality Over Speculation

If a correction does come, high-quality companies with strong balance sheets, consistent earnings, and durable competitive advantages typically fare better than speculative names. Rotating toward quality is a reasonable hedge.

4. Keep Cash Ready

Maintaining dry powder for potential buying opportunities makes sense when valuations are elevated. If a correction delivers 10-20% discounts on quality companies, having cash available to deploy could prove valuable.

The Bottom Line

The S&P 500's three-peat is a remarkable achievement that places the current bull market in rare historical company. But rare doesn't mean unprecedented, and the examples of what followed similar streaks range from modest consolidation to catastrophic collapse.

The wisest approach may be to celebrate the gains, acknowledge the risks, and prepare for multiple scenarios. Trying to predict exactly when a bull market ends is a fool's errand. But recognizing that all bull markets eventually end—and positioning accordingly—is just prudent investing.

Three consecutive years of strong returns have built significant wealth for patient investors. The goal now is protecting those gains while remaining positioned for continued upside. It's a balancing act, but then again, investing always is.