What Happens After Stocks Gain 20%?

“How do you like them apples?” Will Hunting in Good Will Hunting

Welcome to 2025! First off, 2024 was a great year for investors, but it was one of the weakest final five days we’ve ever seen and the worst since 2005. Not to mention Santa Claus didn’t come, which you can read more about here, but I’m not too concerned about that as of now. Remember, we didn’t see Santa last year and stocks still saw huge gains.

The Bad News

The S&P 500 made 57 all-time highs last year, which was the fifth most ever and most since 70 in 2021. Here’s the catch, a lot of new highs hasn’t been a good sign of the following year and many have pointed this out as a reason to be skeptical in 2025.

Since the S&P 500 moved to 500 stocks in 1957 there have been six other years that had 50 or more all-time highs and the next year was lower four times, with an average return the next year of only -1.5% those six times.

Chalk this up as a worry, yes, but let’s also put this in context.

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The S&P 500 made a grand total of ONE new all-time high in 2022 and 2023. Looking at those other six years that had 50 or more all-time highs I found the two years before the big jump in new highs averaged another 34 all-time highs.

One other way to put it is the average number of new highs for any random three year period is 54. Which puts the 58 new all-time highs the past three years in perspective and what we’ve seen lately is perfectly normal.

Maybe I’m just a glass is half full type of guy, but the lack of new highs the two previous years is a big difference between now and those other years and another reason to think 2025 could be solid for the bulls and we’ll see a lot more new highs.

What About After a 20% Gain?

As you’ve probably heard a few times by now, stocks gained more than 20% for the second year in a row. Here’s something you might not have heard though, the returns the next year actually get better after a 20% gain.

That’s right, the average year gains 9.5% and is higher 72.0% of the time. This jumps to 10.6% and 81.0% after a 20% gain, suggesting better than average returns and the bull very well might have a little more up his sleeves this year. But taking this one step further shows that after back-to-back 20% gains the next year is actually up 20% on average and never lower. How about them apples?

Here’s the data for all the years after 20% gains. It is worth noting we’ve only seen back-to-back 20% gains four times, with three of those times taking place in the 1990s (and the other in the 1950s). Yes, that’s a small sample size, but I’d still rather know this than not know it.

The bottom line is history says not to be scared of 20% gains and the likelihood of 2025 seeing double digit gains (or more) is high.

What more good news? We are set to release our Market Outlook 2025 in exactly one week. Stay tuned and thanks for reading!

For more content by Ryan Detrick, Chief Market Strategist click here.

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