With 2024 officially in the books, the stock market has achieved something for the first time in the 21st century. The broader benchmark S&P 500 rose 24% in 2023 and then over 23% in 2024, making it the first time since the late 1990s that the market has posted consecutive gains of over 20%. In those two years, the market is collectively up over 53%.

High-growth artificial intelligence and tech stocks have fueled much of these gains and many investors also think a pro-business Trump administration can keep the stock market rolling. However, history offers dissenting clues about what happens after back-to-back 20%-plus gains in the market. Let's take a look.

This is only the seventh time

You wouldn't know it if you've only been investing for a few years, but the stock market doesn't experience such extraordinary gains very often. The average annual return for the S&P 500 over time is roughly 10%, and the market just more than doubled that twice. It's the first time this century and only the seventh time ever:

  • The market rose 31% and 38% in 1927 and 1928.
  • The market rose 42% and 28% in 1935 and 1936.
  • The market rose 45% and 26% in 1954 and 1955.
  • The market rose 34% and 20% in 1995 and 1996.
  • The market rose 20% and 31% in 1996 and 1997.
  • The market rose 31% and 26% in 1997 and 1998.

Although the market has achieved back-to-back gains on seven different occasions, three occurred in the mid- to late 1990s, so one could argue that this is only the fifth period we've seen the market perform like this. However, history offers varying clues on what happens next because the third year after the market registered consecutive 20%-plus gains has had different outcomes. Following the strong performance in the 1920s, the predecessor to the S&P 500 fell 12% in 1929, which marked the start of the Great Depression, a particularly challenging time for the American economy and the stock market.

After several tough years at the beginning of the Great Recession, the stock market recovered in 1935 and 1936. However, it would take a giant step back in 1937, as the Great Depression would prove difficult to shake. In 1937, gross domestic product fell a whopping 11% and industrial production fell 32%, making it the third-worst recession in history. Interestingly, most attribute this recession to tight monetary and fiscal policy.

In 1956, the market eked out a small gain of roughly 3%. However, it was a rocky ride. The market performed well in the first half of 1956 before crashing over 21% in August.

More than a generation later, as most people are more familiar with now, the rise of the internet and computers would lead to more than half a decade of incredible gains in the mid- to late 1990s. That ultimately led up to the dot-com crash in 2000.

What happens next?

History shows that anything can happen to the market after consecutive gains of 20% or more. It could crash or continue to rip for several years. Investors should always remember that the past can never fully predict the future but should serve as a clue. Typically, most recessions and stock market crashes catch people by surprise even if they are actually similar to things that happened in the past.

In many regards, the market looks overvalued, but that's really because a dozen or so stocks now consume so much of the S&P 500. These high-flying AI and tech stocks may have the power to take the market in whatever direction they go or perhaps the market will eventually broaden.

The past has shown that two years of strong market gains are usually followed by a big move in one direction or the other, so investors should be prepared for volatility. However, people with a long-term investing horizon can remain calm. Recessions and stock market crashes are inevitable but history has consistently shown that rough patches are smoothed out over time, and those who invest over decades usually do well.