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Wall Street began the year cautious about 2024, with the consensus calling for flat annual returns at this time last year.
That turned out to be dead wrong, and the S&P 500 (SNPINDEX: ^GSPC) is now on track to deliver one of its best years in modern history. Through Dec. 20, the broad market index is up 23% and recently topped 6,000 for the first time.
On a two-year basis, the index is also on track for a phenomenal bounce, up 52.8% since the start of 2023. That period has coincided with the artificial intelligence (AI) boom, beginning shortly after the launch of OpenAI's ChatGPT on Nov. 30, 2022. Barring an end-of-the-year crash, which seems unlikely, the S&P 500 will finish the two-year period with a gain of more than 50%.
The index has only done that twice over the last 50 years. The first time came in 1975-1976 when the S&P 500 jumped 56.7% over a two-year span driven by an economic rebound following the oil embargo and recession of 1973-1974.
The second example is a little more complicated and covers five years from 1995 to 1999, or the dot-com boom era. Over that five-year period, the broad-market index jumped an impressive 219.9%, climbing nearly steadily over that span. During each of those two-year periods, the S&P 500 jumped at least 50%, but since they're all part of the same bull market and driven by the same factors, it makes sense to group them together.
What history says
The table below shows how the stock market performed in the years following both of those surges.
| Years | S&P 500 Gains | Following Year(s) S&P 500 Performance |
|---|---|---|
| 1975-76 | 56.7% | 1977: 11.5% drop |
| 1995-99 | 219.9% | 2000-2002: 40.1% drop |
| 2023-24 | 52.8% (so far) | 2025: ??? |
Data source: Ycharts.
As you can see from the chart, both multiyear surges led to pullbacks once they ended, and based on the two examples, the longer the period of gains was, the sharper the sell-off that followed. This pattern goes back further in history as well.
In other words, the S&P 500 can only sustain abnormally strong gains for so long before a retreat. The dot-com boom of the 1990s was unique. A strong economy, the end of the Cold War, and excitement about the internet drove a record bull market -- though the bear market was also longer and stronger than the average bull market as the S&P 500 fell nearly 50% from peak to trough when the dot-com bubble burst.
What's also notable is that if you combine the results from the gains and the pullback, investors still ended up ahead, and with a performance that approximated the historical average return of the S&P 500 of 9%. From 1975 to 1977, the S&P 500 jumped 38.7%, giving investors a compound annual growth rate (CAGR) of 11.5%. In the eight years spanning 1995-2002, the S&P 500 jumped 91.6%, equal to a CAGR of 8.5%.