The S&P 500 Rose More Than 78% Over the Past Three Years. This Is What Happened the Last Time Two Times It Posted Such Strong Gains

The stock market has generated fantastic returns for investors in recent years. A good gauge of its performance is the S&P 500 (SNPINDEX: ^GSPC) index, which is a collection of the leading stocks on U.S. markets. It has continued to reach record highs and make investing look like a breeze.

The reality, however, is that the index is punching above its weight. Historically, its long-run average is an annual return of around 10%. It has not only beaten that in recent years, but it has blown past that. Its 16% gain in 2025 was above average, but that was actually its worst return in the past three years. In both 2024 and 2023, it rose by more than 20%.

From 2023 through to the end of 2025, the index was up a total of 78%. That's an exceptional performance, and the big question for investors is whether it can still go higher. Here's what happened to the S&P 500 the last two times it delivered gains like this.

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The last two times the market was this hot was in 2021 and 1999

If you look at just one year, there are plenty of times where the S&P 500 generated 20% returns or more. But to widely outperform its long-run average for three straight years is a much rarer feat. When looking at the index's historical returns, the last two times it did this well (risen by at least 75%) were in 2021 and 1999.

Back in 2021, meme stock mania took over and the S&P 500 rose by nearly 27%. The previous two years, it was up by 16% and 29%. Together, its three-year gains as of the end of 2021 were just over 90%. It was an incredible performance. In 2022, however, with inflation raising red flags for investors, the index would end up plummeting by 19%. Thankfully, the emergence of ChatGPT and investments into artificial intelligence led to the market's recovery the following year.

Prior to 2021, you have to rewind back to 1999 when the index's gains were so strong. As of the end of 1999, its three-year return was 98%. Technically, even in 1998 and 1997, the three-year returns were also well over 90%. The stock market had been running hot for five straight years, where its annual gains would be at least 19% or more. Following the euphoria, however, was the infamous dot-com crash. The year 2000 would be the start of three straight years of annual declines of at least 10%.

If you exclude the runup to the dot-com bubble, then the last time the index had such a strong three-year run was back in the 1950s. These booms simply haven't happened often.

Even if you're concerned about the market, selling isn't necessarily the answer

Although the S&P 500 has been hot in recent years, that doesn't mean that it's due for a crash in 2026. Back in the 1990s, it wasn't until after five straight years of above-average performances that the market would proceed to crash. If, at the end of 1997, you decided to sell out of the market after three straight years of 20% returns or higher, you would have missed out on the strong rallies in the following two years.

Timing the market can look easy in hindsight, but it's not something that the world's wealthiest and most successful investors try to do. Being out of the market can be costly.

Instead of doing that, the better option may simply be to reevaluate your holdings and get out of overpriced stocks and into more modestly valued ones, which may have less downside risk. Or perhaps try targeting dividend stocks that can boost your returns and give you a bit of a buffer in the event of a market correction. But simply getting out of the market entirely can be a decision you end up regretting later on.

David Jagielski, CPA 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.