The stock market is headed for another superb year in 2024. The broader benchmark S&P 500 is above 6,000 and up over 28% this year (as of Dec. 11). High-growth tech stocks specifically in the artificial intelligence (AI) space have fueled the bull market with seemingly no end in sight as market strategists continue to lift their price targets for the S&P 500 in 2025. The end of the rising interest rate environment has also aided the bulls, as lower interest rates typically usher in stock-buying, and the economy still appears to be strong. Things are so good that the market is on the cusp of doing something in 2024 that has only happened four times over the last 100 years -- and history couldn't be less clear about what happens next.

Bull market mania

The S&P 500 is not only set to have a great year in 2024; it's coming off an excellent year in 2023 when the index increased over 24%. Together, that means the stock market is up over 57% in the past two years. Remember, the market historically has generated annual gains of around 10%.

^SPX Chart

^SPX data by YCharts.

Now, something could disrupt this epic run in the final days of the year. After all, the last few years have been anything but smooth sailing. But if the S&P 500 finishes up over 20% this year, it will be only the fourth time in 100 years that's happened, according to Barron's:

  • In 1927 and 1928, the market rose 31% and 38%.
  • In 1935 and 1936, the market rose 42% and 28%.
  • In 1954 and 1955, the market rose 45% and 26%.
  • In 1995 and 1996, the market rose 34% and 20%.

What happens in the third year after two years of 20% plus gains is much less clear. Following 1927 to 1928, the market fell 12% in 1929, the start of the Great Depression and a rough time for stocks. The market would fall 90% over the next three years, and the Dow Jones wouldn't recover the value it had before the Great Depression until 1954.

In between this time, the market saw a nice bounce in 1935 and 1936 but fell almost 40% the following year. The 1930s was a rough decade for investors and the American economy. In 1954 and 1955, the market managed to post a small 3% gain after several years of a bull market following the Great Depression and the end of World War II. It would be another four decades before the stock market would experience consecutive 20% gains, and this time the market stayed hot. In 1997, the market blazed another 31% higher and would stay hot until the dot-com bubble.

What will 2025 bring?

Most Wall Street analysts expect the S&P 500 to notch another double-digit gain next year. Frankly, market conditions look good. Inflation has cooled, and the labor market remains strong. Goldman Sachs expects U.S. gross domestic product to grow 2.5% next year. Furthermore, President-elect Donald Trump is expected to pass pro-growth policies, such as corporate tax cuts.

What could go wrong? A great many things:

  • Geopolitical tensions could continue to escalate and push up the price of oil, which could hurt the market.
  • Trump's potential tariffs could disrupt the economy and start a trade war.
  • Trump's tariffs and pro-growth policies reignite inflation, and treasury yields move higher.
  • It turns out the Federal Reserve lowered rates too early. Inflation moves higher, and the Fed stops cutting interest rates and maybe even raises them.
  • The economy suddenly tips into a recession.
  • Bond vigilantes demand higher yields on Treasury bills due to growing fiscal concerns around the U.S. budget, which could have a sobering effect on the market.

Many things can still go wrong and send the market into the red next year. Investors should be aware even if market conditions and the economy look rosy. The past has shown it can be difficult to predict what happens next after two back-to-back years of over 20% gains.