
The question I’ve been wrestling with since Thanksgiving (when it became fairly certain that 2024 would end up being another stellar year for stocks) is: “What comes next?”
To recap recent history: large company US stocks, as measured by the S&P 500 index, gained nearly 25% in 2024, which followed a 26% gain in 2023. Back-to-back stock market gains of such magnitude are unusual.
Researcher Michael Cembalest at JP Morgan Asset Management looked at US stock returns going back to 1879. In the past 145 years, there have been ten instances where stocks have climbed more than 20% for two consecutive years.
The table below shows what came after two years of 20%+ returns in the past.
Underneath each year, the corresponding return of the stock market for that year is shown. The two consecutive “20%+ return years” are shown on the left in the regular font, and what happened in the subsequent two years follows on the right in bold font.

Source: JP Morgan
What does history tell us about what comes after two fabulous years of 20%+ consecutive returns?
- In eight of the nine historical instances, cumulative returns in the following two years were lower
- In five instances, cumulative returns, while lower, were still positive
- The three instances where cumulative returns were negative coincided with either recession (1957) or the Great Depression (1929-30 and 1937-38)
- In one instance (1995-1998) returns following the two years of 20%+ consecutive returns were higher
This data suggests that if the US economy avoids recession for the next two years, then there is a good chance that US stock returns will be positive in the 2025-2026 period.
The JP Morgan researcher Michael Cembalest (who compiled the data) has this to say about 2025:
- Expect a 10% – 15% correction at some point in 2025
- In 60 of the past 100 years there has been at least a 10% correction
- In 40 of the past 100 years there has been at least a 15% correction
- US equity markets should end the year higher than they began
- Be sure to have plenty of liquidity to take advantage of what might be a volatile year
Other Voices: four researchers that I respect and follow closely from three firms have made the following comments in their 2025 outlooks:
- Torsten Slok, Chief Economist at Apollo: “Incomes are high, stock prices are high, home prices are high, debt levels are low, interest rate sensitivity is low, and banks are more willing to lend to households. There is significant upside risk to US growth, inflation, and interest rates.”
- Howard Marks, co-founder of Oaktree Capital: “The markets, while high-priced and perhaps frothy, don’t seem nutty to me.”
- Nick Colas & Jessica Rabe co-founders of DataTrek: “We’re sure 2025 will have its share of concerns, but, in the end, we see little that could derail the ongoing move to higher stock prices.”
As we move into the next year, my take on 2025 is:
- Stocks continue to be an important part of the investment portfolio and a good bet for long-term investors
- Return prospects for intermediate-term bond funds have improved as Treasury bond yields have moved up toward 5%
- Inflation resurgence and surprise economic policies from the incoming Trump administration pose the biggest potential risks for financial markets
- While we’re likely to see episodes of stock selling and lower prices in 2025, conditions are not present for the onset of the next bear market
- Portfolio returns are likely to be satisfactory for many investors this year, though probably not as strong as in 2023 and 2024
-RK