The Stock Market Has Only Seen 4 Periods Like This In 100 Years -- And History Couldn't Be Less Clear About What Happens Next

The stock market is headed for another superb year in 2024. The broader benchmark S&P 500 is above 6,000 and up more than 27% this year (as of Dec. 16). High-growth tech stocks specifically in the artificial intelligence (AI) space have fueled the bull market with seemingly no end in sight as market strategists continue to lift their price targets for the S&P 500 in 2025.

The end of the rising interest rate environment has also aided the bulls, as lower interest rates typically usher in stock buying, and the economy still appears to be strong. Things are so good that the market is on the cusp of doing something in 2024 that has only happened in four time periods over the last 100 years -- and history couldn't be less clear about what happens next.

Bull market mania

The S&P 500 is not only set to have a great year in 2024; it's coming off an excellent year in 2023 when the index increased over 24%. Together, that means the stock market is up over 58% in the past two years. Remember, the market historically has generated annual gains of around 10%.

Data by YCharts.

Now, something could disrupt this epic run in the year's final days. After all, the last few years have been anything but smooth sailing. But if the S&P 500 finishes up over 20% this year, it will be only the seventh time in four time periods during the past 100 years that's happened, according to Barron's:

• In 1927 and 1928, the market rose 31% and 38%.
• In 1935 and 1936, the market rose 42% and 28%.
• In 1954 and 1955, the market rose 45% and 26%.
• In 1995 and 1996, the market rose 34% and 20%.
• In 1996 and 1997, the market rose 20% and 31%.
• In 1997 and 1998, the market rose 31% and 26%.

Now, I understand the string of four years of gains of 20% or over from 1995-1998 is technically three separate instances of back-to-backs, but because they occurred all in a row, I (and Barron's) only count it as one period.

What happens in the third year after two years of 20%-plus gains is a bit mixed, but leans mostly toward the negative.

Following 1927 to 1928, the precursor to the S&P 500 (the S&P 500 took its current form in 1957) fell 12% in 1929 and signaled the start of the Great Depression and a rough time for stocks. The market would fall 90% over the next three years, and the Dow Jones Industrial Average wouldn't recover the value it had before the Great Depression until 1954.

During the Great Depression years, the market did see a 20%-plus bounce in 1935 and 1936 but fell almost 40% the following year. The 1930s was a volatile decade for investors and the American economy.

Following the 1954 and 1955 period, the market did manage to post a small 3% gain after several years of a bull market following the Great Depression and the end of World War II. It would be another four decades before the stock market would experience consecutive 20% gains again and this time the S&P 500 stayed hot.

In 1995, the S&P 500 finished strong, up 34% on the year. In 1996, it did it again with a 20% gain. In 1997, the market blazed another 31% higher, and then would also post gains of 26% in 1998. It almost repeated for a fifth straight year in 1999 when it rose 19.5%. The S&P 500 finally crashed in 2000 at the start of the Dot-Com bubble and posted three straight negative years from 2000 to 2002.

What will 2025 bring?

Most Wall Street analysts expect the S&P 500 to notch another double-digit percentage gain in 2025 (but are more divided on whether it will be a 20%-plus gain). Frankly, market conditions look good. Inflation has cooled, and the labor market remains strong. Goldman Sachs expects U.S. gross domestic product to grow 2.5% next year. Furthermore, President-elect Donald Trump is expected to pass pro-growth policies, such as corporate tax cuts.

What could go wrong? A great many things:

• Geopolitical tensions could continue to escalate and push up the price of oil, which could hurt the market.
• Trump's potential tariffs could disrupt the economy and start a trade war.
• Trump's tariffs and pro-growth policies reignite inflation, increasing Treasury yields.
• It turns out that the Federal Reserve lowered rates too early. As inflation moves higher, the Fed stops cutting interest rates and maybe even raises them.
• The economy suddenly tips into a recession.
• Bond vigilantes demand higher yields on Treasury bills due to growing fiscal concerns around the U.S. budget, which could have a sobering effect on the market.

Many things can still go wrong and keep the market from rising or even send the market into the red next year. Investors should be aware of this and plan for it even if market conditions and the economy look rosy. However, the market could also keep this 20%-plus run going for several years, as experienced in the late 1990s.

The past has shown it can be difficult to predict what happens next after two back-to-back years of over 20% gains. The only thing that is somewhat predictable is that the S&P 500 does increase over the long term.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.