There's a first time for everything. And some firsts come with significant repercussions.
Investors may soon witness a significant first for the stock market unfold before their eyes. The S&P 500 (^GSPC 1.52%) is poised to do something that has never happened before. Here's what history suggests stocks will do in 2026.
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Unprecedented (but not unusual)
With only three trading days remaining this year, the S&P 500 is currently on track to finish at a record high. Even if the Santa Claus rally wanes somewhat, the index will likely end 2025 with a strong double-digit percentage gain.
It's probably safe to predict that the S&P 500 will close well above 6,600 for the first time in history. The index could even finish close to 7,000. The S&P 500's previous highest year-end level was almost 12 months ago, when it hit nearly 5,882 on Dec. 31, 2024.
Wrapping up the year above 6,600 is unprecedented. However, closing a year at or near a record high isn't unusual at all. Neither is finishing a year at a higher level than any previous year-end close. In fact, it has happened 42 times since 1927 (when a predecessor of the S&P 500 that included 90 stocks was used).
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Key Data Points
History lessons
While the S&P 500 appears poised to achieve something that has never happened before on Wednesday, the past may still offer clues about what lies ahead for the stock market. Those clues look promising.
For example, the S&P 500 ended 1954 with its highest year-end finish ever at the time. Fast-forward one year. The index had jumped more than 26% higher.
The 1980s saw multiple record year-end closes for the S&P 500. In seven of those cases, the index was higher at the end of the following year, with five double-digit percentage gains.
A similar story unfolded in the 1990s. The S&P 500 finished at its highest year-end level ever eight times. In six of those cases, the index delivered positive returns the following year, with four of the increases in the double digits.
To be sure, the good times didn't always keep rolling. Going way back to 1928, the predecessor of the S&P 500 ended the year on a high note, only for the stock market crash in October 1929 to bring the momentum to a screeching halt. Double-digit percentage declines in the year following an all-time year-end close were more common than single-digit drops.
More recently, the S&P 500 rebounded dramatically in 2020 and 2021 following a pandemic-fueled sell-off. However, the index plunged nearly 20% in 2022. Overall, though, the S&P 500 rose the year after closing at a record year-end level more than twice as frequently as it declined.
How will the stock market perform in 2026?
I think there are two lessons to be learned from these historical precedents. First, momentum is a real phenomenon in the stock market. Bull markets often have staying power. Second, though, is that when the joyrides end, they can end hard.
With all this in mind, how will the stock market perform in 2026? Based on the examples we've already seen, the chances of another positive gain for the S&P 500 look pretty good.
However, the historical pattern is murky, at best, after the S&P 500 jumps by 15% or more for three consecutive years – as it appears to be on the verge of doing. In the eight instances where this has happened in the past, the index maintained its momentum half of the time and fell the other half of the time.
The reality is that no one knows for sure how the S&P 500 will perform next year. The good news, though, is that the index has delivered excellent returns over the long term. Investors' best strategy, therefore, is to buy and hold without worrying about short-term volatility.
