The S&P 500 just delivered one of the greatest three-month rallies in its storied history, gaining 25% and reaching a new record high on Thursday.
History shows the S&P 500 has always been higher in the year following a three-month rally of 25%, notching additional gains of 22%, on average.
Inflation or tariffs could still derail the rally, but the long-term future looks bright.
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This year has been a wild ride for investors. After notching a new all-time high in mid-February, the S&P 500 (SNPINDEX: ^GSPC) promptly slumped 19% on fears tariffs imposed by the Trump administration would derail economic growth and reignite inflation.
However, since its early-April lows, the market has staged a remarkable recovery, gaining 26% during the past three months and reaching a new record high on Thursday, July 10.
To give that move historical context, the S&P 500 has gained 25% during a three-month period just five other times in its storied history. The data shows that in every previous instance, the benchmark index has delivered additional gains over the next 12 months, generating double-digit returns. Let’s look at what this means for investors.
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The S&P 500 has generated returns of 25% or more during a three-month period just five other times since the benchmark index was introduced in 1957, according to Ryan Detrick, chief market strategist at financial services company Carson Group. His research shows that in the 12 months following each of those occasions, the S&P has always risen, and notched double-digit gains every time.
This table shows the years in which the S&P 500 generated gains of 25% (or more) during a three-month period and the returns of the index during the succeeding 12 months:
Year of S&P 500 25% (+) Rally
S&P 500 12-Month Change
1975
18%
1982
20%
1999
12%
2009
19%
2020
39%
Average
21%
Data source: Carson Group. Table by author.
As the table illustrates, the S&P 500 delivered returns of 21% on average during the 12 months following a period when it gained 25% within three months. For context, the benchmark index has returned 10% annually since its inception in 1957. This shows that the market’s performance was much better than average following these rallies.
To quote the old Wall Street axiom, “Past performance is no guarantee of future results.” That said, given the available data and its historical context, students of history can make an informed decision about the trajectory of the market over the coming year. The S&P 500 closed out Thursday at about 6,280, so the index would need to clear 7,033 to hit the low end of the historical range by next July.
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Bullish analysts are already on board. As my colleague Trevor Jennewine points out, 2025 year-end targets for the S&P 500 range from 5,500 (roughly 12% below Thursday’s close) to 7,007, about 12% higher than current levels. That seems to suggest that the market has a pretty good shot at hitting that threshold over the coming year.
Given the historic volatility and uncertainty that remains, it’s easy to understand why investors might not be confident that the current stock market rally will continue. After all, the on-again, off-again tariffs have long been in flux, and the battle against persistent inflation is far from settled. Furthermore, experts have conflicting opinions about the ultimate impact of said tariffs on inflation.
As if to emphasize the point, President Trump announced plans this week to impose double-digit reciprocal tariffs on a number of countries if the U.S. doesn’t have trade agreements in place by Aug. 1.
The volatility of the markets and the aforementioned tariffs have some investors concerned about what the near term might hold — but long-term investors tend to view the future through a different lens.
Does this mean the market will continue to post gains? Not at all. Note that the historical returns examples provided take 12 months to play out. While the data suggests the market will sport double-digit gains over the coming year, I expect the broader market to deliver a couple of head fakes over the coming weeks and months, and I wouldn’t be surprised if the historic volatility investors have experienced continues.
Additionally, adding to your portfolio regularly — in good times and bad — takes much of the guesswork out of investing and helps investors develop the discipline to prosper over the long term, regardless of which direction the short-term market winds are blowing.
History shows that the stock market has generated returns of 10% annually, on average, over the past 50 years. This is a clear indication that investing with a focus on the long term is the clearest path to success — even if history repeats itself.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Stock Market Did Something for Just the 6th Time Since 1957. History Says It Signals a Big Move for the S&P 500 Over the Coming Year. was originally published by The Motley Fool
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