2025 is turning out to be a solid year for stock market investors. Despite all of the headlines and volatility that took place in the first four months of the year, the market is on pace to return 16% this year. We’ll take it! Yet, skeptics abound about just how high the market can go. We’ll look at various data points that paint a more optimistic picture than you might expect.
On pace for a third winning year in a row
A big theme heading into the year was whether or not stocks could rise for a third year in a row. In a piece we wrote last November titled, The Outlook and Considerations for 2025, we looked at the stats surrounding three year winning streaks.
We highlighted that since 1926, there have been 16 other instances of two year winning streaks following a down year. Year 3 has been positive 13 times and negative 3 times (81% of the time). 2025 is on pace to improve those numbers even more, to 14 out of 17 (82%) positive year three returns.
What’s remarkable is how closely 2025 is lining up with historical performance compared to other “Year 3” performances in 3 year win streaks. Up 10% on the year as of this writing, the S&P 500 is on pace for a 16% yearly gain in 2025. This compares to an average winning “Year 3” return of 15.78%!
At this rate, the conversation near the end of the year will shift towards if the market can go up a fourth year in a row in 2026. We’ll have an article out next month that looks at year four returns.
You can stay optimistic
Four months ago we were fielding questions from clients wondering how low stocks could go — today they’re asking how high they can go? First, looking back at our winning “year 3” study referenced above, there’s another 3-6% worth of upside before we get into the median and average return ranges of 12.45%-15.75% for that third year in a row of gains.
In addition, we can take the momentum in the market over the last few months as a positive sign. Specifically, the S&P 500 rose 14% between May and July. This was the fourth best May through July performance since 1950. Average returns for the rest of the year following other “best” May-July periods, comes in at 6.80%. That’d be pretty good if that can play out again.
At its worst point this year, the S&P 500 had fallen 19%. This decline fell just short of the arbitrary 20% decline that finance folks use to define a bear market. There have been seven of these “near bear markets” since 1950, and the returns following all of them have been very impressive.
Lastly, the market being at all time highs has not usually been a reason to fear stocks going down. So before you think about “selling high,” keep in mind that markets often go even higher. The table below looked at returns when investing at all time highs versus investing at all other times. The data shows returns are even stronger over three-five years when the market is at all time highs. Click here for a deeper dive.
2025 shouldn’t come off the rails
While it was hard to foresee a strong year for stocks a few months ago, those who stayed the course have been rewarded. We’ve heard from a number of clients recently who wonder if now is a good time to take profits. We’d caution against trying to “time the top” in the market and offer instead that the market can go higher than you expect. At the moment, the data we look at still paints a rosy picture for the remainder of the year.
This isn’t a call to be greedy. If you have certain goals that are now within view thanks to the market’s strong performance, then you should react accordingly. But if you just randomly log in to your account and think, “Wow! These numbers look nice and I think the market’s going to tank… sell everything!” — that type of approach is almost surely going to cost you in the long-run.
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