2025 capped a three-year run in which the S&P 500 (^GSPC +0.16%) gained 78%. That's an incredible return, demonstrating the power of investing in the market. That's why investing in exchange-traded funds (ETFs) that track the S&P 500, such as the Vanguard S&P 500 ETF or the SPDR S&P 500 Trust, has become so popular; the Vanguard fund has $1.5 trillion in assets, higher than the market cap of all but seven U.S. stocks on the market. Investing in these types of ETFs gives you access to the power of the market.
After three years of double-digit gains, can the market keep growing in 2026? The answer may surprise you.
Image source: Getty Images.
Why the market has been soaring
Let's take a step back for a minute and see why the market has soared over the past three years. Don't forget that just before that, in 2022, the S&P 500 lost 18% of its value, and both Amazon and Nvidia lost about half of their total values. That probably seemed scary to a lot of investors at the time. It may have looked like a big gamble to buy their stocks then or buy into the market at all. Since then, Amazon stock is up 175%, while Nvidia stock is up 1,200%.
The economy wasn't looking great in 2022. Inflation was climbing and interest rates were being raised after hovering around zero. Money was no longer easy, and economists were worried about a recession.
However, as is often the case with black swan events, no one was anticipating the launch of ChatGPT at the end of the year and the resurgence in market confidence that followed over the past three years. Generative and agentic artificial intelligence (AI) has transformed the world, leading to renewed spending as companies jump on the AI bandwagon. There are plenty of indications that the economy remains strong despite inflation, and interest rates are now on their way down without a recession taking place.
Image source: Getty Images.
What does history say?
The newest worries on Wall Street concern a stock market bubble. Amazon, Meta Platforms, and Alphabet are investing hundreds of millions of dollars in developing AI platforms, with a significant portion of their total market value allocated to a small number of large stocks. Just as the market wasn't predicting the advent of AI, it may not be preparing for something to get in the way of AI right now, and analysts are unsure that all this spending will lead to a profit windfall.
Additionally, the market has become more expensive, as investors have become increasingly enthusiastic. The CAPE ratio, which is the cyclically adjusted P/E ratio of the S&P 500, is up 40% over the past three years and currently comes in at 39, a high it reached only once before, in 2000, before the market crashed.
When the market crashed in 2000, it was after five years of strong, double-digit market gains. It then experienced a three-year period of losses before returning to a second five-year period of gains.
In fact, the market has experienced five separate periods of at least four consecutive years of gains since 1930. That's a pretty good track record. So while I'd still say it's rare, it's definitely a possibility.
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How investors should prepare
So where does that leave investors? In a very good place, actually. There's a good chance that the market will continue to climb in 2026. Interest rates are falling, and consumers are still spending. AI is driving market gains, but more than that, it's creating real value and tangible profits for companies. The big AI companies are tremendously profitable and have a substantial amount of cash; that makes it seem less like a bubble. There is a precedent for several more years of gains.
However, as the market gets more expensive, investors should definitely be prepared for any outcome. Make sure that you have a diversified portfolio with plenty of protective, safe stocks that can shield your portfolio if the market does crash, but stay with some top growth stocks in case it continues to go higher. You might also want to have some cash set aside so you can take advantage of great deals if the market heads south.
Over many decades, the market has been an incredible wealth generator. Regardless of what happens in 2026, history suggests that staying invested and letting your money work for you can lead to investing success.
