It's been a bumpy ride for the stock market this year, with the market almost hitting bear territory in early April after President Donald Trump's announcement of significant global tariff rates shocked the world. However, the market bounced back quickly after Trump eased up slightly, and it had time to assess the impact of the tariffs.

The market has also performed well, thanks in part to Trump's tax cuts and the Federal Reserve's interest rate cuts. The economy has remained on solid footing, inflation hasn't yet surged, as some expected, and the artificial intelligence trade continues to be resilient despite many investors questioning valuations and AI-related capital expenditures.

As the year winds down, the broader benchmark S&P 500 index is currently in a period that we've only experienced four times over the last 100 years, and history couldn't be less clear about what comes next.

Image source: Getty Images.

Periods of superb performance

Following the Federal Reserve's intense interest rate hiking campaign in 2022, the stock market soared in 2023 and 2024, generating returns of over 24% and 23%, respectively. Back-to-back gains of more than 20% don't come around too often. In fact, it's only happened in four different periods throughout history, according to data from Bank of America and reported on by Barrons.

The first time this occurred was during the roaring 1920s, when new technologies like automobiles and telephones emerged, as well as growth in the investment industry, with ordinary people choosing to invest for the first time.

The second time the S&P 500 put up consecutive 20% gains occurred in 1935-1936, as the market finally began to recover after the crash that began in 1929 with Black Monday, or so they thought. The third time came in 1954-1955, when the stock market finally surpassed its 1929 level, restoring investor confidence and driving significant economic expansion. This shows just how devastating the 1929 debacle was for the stock market.

The fourth time occurred in the mid-1990s when stocks rocketed higher until the beginning of the 21st century, driven by the internet boom, which, as we know, eventually changed everything.

Is this as good as it gets?

If we look back at history, it's hard to say if the market's current performance is as good as it gets. History is unclear, as seen by the S&P 500's performance in the third year following these exceptional times:

Source: Bank of America Securities/Barron's

As you can see, following two years of exceptional performance, the market can either tank or continue surging higher. The good news is, barring any end-of-the-year catastrophes, the S&P 500 is poised to deliver another strong year, up nearly 17% with just weeks remaining in 2025 (as of Dec. 4). Perhaps the other good news is that these rallies can continue for several years, as seen during the internet boom in the 1990s, which many are currently comparing to the ongoing AI rally.

The market has certainly been fragile, as evidenced by wild swings this year, so I could see things going either way. There are certainly similarities between the 1990s and the present, as well as notable differences. History often rhymes but rarely repeats itself.

Long-term investors should understand that the market can continue to rally, but at some point, we are likely to experience another recession or a significant pullback. That's part of the economic cycle, although it's always hard to determine when. So retail investors can stay the course, understanding that there will be volatility and periods of extreme stress, but that the market is always likely to emerge higher at some point.

Concerned investors can take steps to ease their stress while still investing, such as dollar-cost averaging or diversifying into an equal-weighted S&P 500 index that is less volatile. However, if you can hold stocks for 10 or 20 years, historical data suggests that, regardless of what happens over the next few years, you are likely to be OK in the long term.