The S&P 500 Posted Its Best Quarterly Performance Since 2020. History Says This Happens Next.

The S&P 500 has roared higher in recent years, amid a bull market that's pushed the index to record highs multiple times. Though the positive momentum paused in the first quarter, with the index declining amid concerns about turmoil in Iran and worries about tech companies' spending on artificial intelligence (AI), it returned in full force in the second quarter.

The famous benchmark soared 14% over the three months, for its best quarterly performance in six years. This was amid optimism about peace negotiations in Iran and as corporate earnings suggested that AI investments were bearing fruit -- and would continue to do so.

Now, after this spectacular performance, investors may be wondering about what will happen next. History offers us a clear idea.

Image source: Getty Images.

A rough start to the year

So, first, a quick recap of the index's path this year. As mentioned, the S&P 500 got a rough start to the year, losing more than 4% in the first quarter. The war in Iran pushed energy prices higher and introduced uncertainty into the market -- something investors don't like. This prompted a shift away from growth stocks, seen as risky, and into stocks viewed as safer, such as dividend players and healthcare stocks.

Meanwhile, investors also focused on the enormous amounts that tech companies were spending on AI amid the infrastructure build-out. For example, Amazon, Alphabet, Microsoft, and Meta Platforms plan on spending a total of nearly $700 billion this year alone. The concern was that the revenue opportunities wouldn't justify such spending -- and this weighed on AI stocks, from AI chip giant Nvidia to software player Palantir Technologies.

So, what happened in the second quarter to turn things around? Steps toward negotiations in Iran eased investors' minds, oil prices started to decline, and U.S. tech companies reported strong earnings and high demand for AI products and services. And tech giants offered the same message, predicting ongoing demand at these levels as more and more companies put this hot technology to use through agentic AI. These are the AI systems that address a problem and take steps that usually would be taken by humans to solve it.

IPO excitement

Finally, excitement about technology IPOs -- from Space Exploration Technologies' (SpaceX) recently completed operation to Anthropic's confidential filing with regulators -- added to optimism about technology stocks.

And that brings us to the S&P 500's fantastic performance for the quarter. Now, let's consider our question: What's next for this major benchmark?

A look at history, according to data compiled by The New York Times, shows us that over the past 10 years, the S&P 500 posted a quarterly advance of 10% or more seven times. And six of those times, the index went on to gain for at least two consecutive quarters. So, if history is right, the S&P 500 could be on track for a strong second half.

What this means for you

What does this mean for you as an investor? First, it's important to note that, though history may offer us valuable clues about what often happens, it isn't correct 100% of the time. If unexpected economic or geopolitical headwinds emerge, for example, or if a major sector like tech delivers bad news, the index -- otherwise on track to gain -- could quickly shift gears.

So why even consider historical trends? They offer us an idea of what generally happens in certain situations, and that may help us somewhat along the investment path. But the best news of all is the following: Though history may not always get it right when it comes to near-term performance, it's always been right about one thing. The S&P 500 gains over the long run.

This means that, regardless of the index's performance over the coming months or quarters, you can be certain that over a period of years, it will advance. It's always done so in the past. And you, too, can score a win by investing in quality stocks at reasonable prices, and/or buying a fund that tracks the S&P 500, and holding on for the long term.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.