The stock market has been on a roller coaster ride since the start of the year.
After a rocky January, when AI stocks got dinged by DeepSeek's news of a cheaper reasoning model, the S&P 500 (^GSPC 0.09%) returned to an all-time high in February. Then, President Trump's tariff discussions put many investors on edge as he announced plans for taxes on imports from Mexico, Canada, and China. That went into overdrive at the start of April, when Trump enacted significantly higher-than-expected tariffs on practically every country in the world. The announcement produced one of the worst two-day market crashes in history.
But after walking back the implementation of most of the tariffs (for now) and investors acclimating to this uncertain environment, the stock market has mostly recovered. In fact, the S&P 500 index just did something in May for the first time since 1990, and historically, it signals a big move in stocks over the next 12 months.
Here's what investors need to know.
Image source: Getty Images.
A historic month for the stock market
The S&P 500 climbed 6.15% in the month of May. That's the first time the benchmark index climbed more than 6% in the month of May since 1990 and just the seventh time May's performance has topped 5% since 1985, according to Carson Investment Research's Ryan Detrick.
Data by YCharts.
While investors who missed the chance to buy the dip in April may be bemoaning the stock market's rapid comeback, history suggests they may still have an opportunity to buy. In each of the last six instances when the S&P 500 return topped 5% in May, it went on to produce an average return of nearly 20% over the next 12 months. So much for "Sell in May and go away."
In fact, Detrick's data shows that none of the six instances ended with a negative return over the next 12 months despite the market's penchant for reverting to the mean. That said, investors who bought after the 9.2% rally in May of 1990 did have to sit through a three-month period from July through October when stocks fell almost 20%. Ultimately, however, those investors saw the index climb about 8% for the year after the May rally.
The month of June is already off to a strong start as of this writing. But if investors can expect 20% gains in the index for the next year, there's still a lot more growth to come.
Here's what investors can really expect
While Detrick's data shows the market tends to keep climbing higher after abnormally strong Mays, investors shouldn't put too much weight into the historical data.
First of all, the sample size is minuscule. Six data points over 40 years don't give enough information for the basis of a financial decision.
Second of all, every market is different. The 1990 rally was fueled by falling interest rates. Indeed, the rate on the 30-year Treasury bond fell all the way from 9% to 8.6%. By contrast, the 2025 rally was fueled by easing trade tensions. In both cases, many investors expressed concerns about market valuations amid the rally. Indeed, the CAPE ratio returned to its high levels, and stocks look even more expensive after analysts adjusted their forward earnings expectations lower. Still, it's unlikely the next 12 months will look anything like the 12 months from June of 1990 through May of 1991.
As such, individual stock investors should remain vigilant in their efforts to find good investments. As investor Peter Lynch said, "Buy the right stocks at the wrong price at the wrong time and you'll suffer great losses." But if you find a good opportunity, history suggests you could end up with a strong return over the next year.
For passive investors, you're playing a different game. There's no need to pay attention to history. You should be fully invested in your index fund of choice at all times. Trying to time the market based on recent results is a surefire way to underperform the index over the long run.
May's rally was a welcome reprieve from the crash we saw in April. History suggests more strong months may be ahead, but I caution investors from reading too much into how similar May rallies have played out in the past.
