Will the S&P 500 Soar in the Double Digits This Year? History Offers a Compelling Answer.

The stock market wasn't looking very bright just a few weeks ago. The S&P 500 (SNPINDEX: ^GSPC) sank more than 15% to a low in April and even temporarily entered bear market territory. The situation wasn't any better for the Nasdaq Composite (NASDAQINDEX: ^IXIC), which crashed into a bear market, and the Dow Jones Industrial Average (DJINDICES: ^DJI), which also posted significant declines.

The reason for the turmoil? Concerns about the economy. President Donald Trump had announced an import tariff plan, and investors worried this would result in higher prices at home -- and a weight on corporate earnings and the general economy. Since, Trump has made initial trade deals with the U.K. and China, at lower-than-expected tariff levels, which has eased investors' minds.

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As a result, indexes have recovered, each reaching into positive territory for the year, and the S&P 500 has posted a gain of more than 2% as of the June 11 market close.

Now, investors are wondering: After this rough start, could the S&P 500 advance in the double digits this year? Let's look to history for some answers.

Image source: Getty Images.

AI and interest rates

So, first, let's consider what's driven the bull market over the past couple of years. The S&P 500 roared higher in 2023 and 2024 as investors piled into technology players in the hot-growth area of artificial intelligence (AI), and on anticipation of interest rate cuts. The Federal Reserve began decreasing rates last year as inflation cooled -- this is positive for corporate earnings in general as lower rates result in lower costs for companies and their customers.

As for AI, it is often seen as the next big technology that could change the way business is done and how our daily lives are organized. Companies like Meta Platforms and Alphabet already have launched AI assistants to help all of us with daily tasks -- and companies like Nvidia are powering the training of large language models (LLMs) and offering industries platforms to automate factories and discover new medicines. The AI market is expected to surpass $2 trillion in just a few years, and many companies -- and their investors -- are positioned to benefit.

All this drove gains in the major benchmarks as investors aimed to get in on current and future AI winners during their early phases of growth. But, in the first few months of this year, Trump's tariff plan stoked worries that higher prices could put the brakes on even the strongest AI story.

As mentioned, since that time, Trump's trade talks and agreements have calmed those fears -- and announcements of big capital spending plans from technology giants have helped spur investor optimism too.

What happens after a difficult start to the year

Now, let's look at what history tells us about the S&P 500's performance ahead. And for this, we'll look to statistics from Ryan Detrick, chief market strategist at Carson Group. History shows us the S&P 500 has ended the year with a double-digit gain in years when it fell 15% or more at a certain point -- this happened most recently in 2009 and 2020. The key, though, is reaching the low early in the year, as it did in those two years.

Data source: Carson Group.

The S&P 500, this time, "bottomed in April and the slingshot effect is in full motion," Detrick wrote in a post on X (formerly Twitter) earlier this month.

So, historical performance suggests the S&P 500 right now could be well positioned to deliver a double-digit gain in 2025. This is fantastic news, but there is one particular point to keep in mind. History is often right, but it doesn't always dictate what the market will do. So, it's important to be prepared for any scenario, and you can do this by investing in quality companies at the right price -- and holding on for the long term.

One key reason why it's impossible to predict market direction has to do with general and corporate news and the reaction of investors to that news. Any positive or negative element could drive unexpected gains or losses for the S&P 500, upsetting historical trends.

Still, the trend I mentioned, along with the S&P 500's gains in recent days and progress on U.S. trade agreements, offer us reasons to be optimistic as we look toward the second half of this year. The S&P 500 may soar as it's done in the past, offering us a third consecutive winning year -- and great progress along our own paths to wealth.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.