The S&P 500 (^GSPC -1.11%) is the most universally recognized benchmark of stock market activity in the U.S., made up of the 500 largest companies in the country. Because of its broad base of constituent businesses, it is considered by most investors to be the most reliable gauge of stock market performance.

The index has charged steadily higher since the start of 2023, fueled by a flurry of positive market drivers:

Thanks to this quintet of bullish developments, the S&P 500 is poised to generate its second consecutive year of 20%+ returns, which hasn't happened since 1998. That could signal a big move for the stock market in 2025.

Wall Street traders looking at graphs and charts cheering because the stock market went up.

Image source: Getty Images.

A robust rally

After suffering through the worst economic conditions since the Great Recession, the market recovery is in full swing, and the past couple of years have been profitable ones for investors. The S&P 500 generated gains of 24% in 2023 and is up more than 26% thus far in 2024 (as of this writing).

It's worth noting that the benchmark index has delivered back-to-back years of 20%+ gains just eight times since 1950. If the market's momentum holds, that could foreshadow a big move for the S&P 500 next year.

We're just over two years into the current bull market, which kicked off on Oct. 12, 2022. While every bull market is different, a look at the past can help provide context. The average bull market lasts just over five years or 1,866 days. The market bottom occurred just over two years ago, which suggests there's still upside ahead. Additionally, since its trough, the S&P 500 has gained roughly 68%. That pales in comparison to the average bull market, which delivers gains of 180%. The data suggests that we're still in the early days of the current rally.

There's more. Existing data suggests the current market rally will likely continue, according to Ryan Detrick, chief market strategist for financial services company Carson Group. Detrick poured over charts going back to 1950 and found just eight instances when the S&P 500 generated gains of 20% or more in successive years. In six of those, the market rally continued into the third year, generating average returns of 12%.

The data is clear and suggests the market is poised to deliver better-than-expected results next year. "Bull markets last longer than you think," Detrick said, pointing to an average length of five and a half years.

The historical precedent aside, there are other reasons to be bullish, namely a strong economy and increasing corporate profitability. Recent data shows that inflation has fallen to its lowest level in more than three years, highlighting a strengthening economy.

"When you have an economy that continues to surprise to the upside, you tend to have solid earnings," Detrick said. He goes on to point out that the S&P 500 member companies are expected to generate earnings per share (EPS) of $269 in 2025, an increase of 19% compared to early 2023. Furthermore, Wall Street's earnings estimates continue to ratchet higher, which is generally a bullish indicator.

Taken together, the historical data, the improving economy, increasing corporate profits, and bullish sentiment on Wall Street suggest the bull market will continue in 2025.

To be clear, all the usual caveats apply. In the stock market, as in life, there are no guarantees. And while nothing is certain, history offers a 75% probability the market will continue to rise next year, resulting in average gains of 12%.

Does that mean the investors will enjoy positive returns in 2025? No one can say for sure, but given the available evidence, the chances are good.

^SPX Chart

Data by YCharts

Time will tell

Simply put, nobody knows for sure where the market will end up next year, but that hasn't stopped Wall Street's best and brightest from giving it the old college try -- and their prognostications are decidedly bullish. Just this week, Deutsche Bank boosted its year-end target for the S&P 500 to 7,000, which would represent potential upside of 16% compared to the market's closing price on Tuesday.

Yardeni Research is even more bullish. President Ed Yardeni expects the benchmark index to climb to 7,000 next year, 8,000 in 2026, and 10,000 by the end of the decade -- which would represent potential gains for investors of 66%. He cites increasing company earnings as paving the way for the bull market to continue: "I'm thinking that the market goes up on earnings and that earnings, which were probably about $250 a share this year, go up to $275 a share next year, and $300 a share the year after that. By the way, by the end of the decade, I think we could be at $400 per share, which times a 20 multiple or so gets us to 8,000 on the S&P 500."

For those with a long-term outlook -- I include myself among those numbers -- it really doesn't matter what the S&P 500 does in the coming weeks or months. History has shown that despite the occasional downturn, the stock market has consistently gained ground over time, helping market participants reap the rewards. In fact, over the past 50 years, the stock market has returned 10% annually, on average, delivering a virtual windfall for everyday investors.

The lesson here is clear. Buy stocks in the best companies you can find and let time do the heavy lifting.