The S&P 500 is currently on track to close out 2025 in just under 10 days with a 16% gain, marking three years in a row of double-digit returns, something investors have taken full advantage of. Following 2023’s 24.2% return and 2024’s 23.3% surge, the index will likely end up with a three-year cumulative gain of around 77.5%. If you were an investor who has stuck to the course, even through all of the early tariff madness, you’ve likely done pretty well.
There is no question that this three-year run has been something to celebrate, and it’s also very rare. Since the end of World War II, the S&P 500 has only delivered three consecutive years of double-digit returns a total of three times. Each of these previous instances saw investors working with a similar conviction that this kind of momentum will continue indefinitely, and it feels as if the same thing is happening now.
However, investors should take note that what really happened in each of these situations is a warning sign that, if ignored, could lead to significant risk for your portfolio.
A Historical Triple Threat: The S&P 500’s Rare Winning Streak
Setting aside any concerns for a brief moment, it’s a pretty rare thing to see a three-year run of double-digit S&P 500 gains. Although the long-term average is approximately 10%, this kind of three-year streak means that these past 36 months have delivered around two to two-and-a-half times the historical levels investors are used to seeing.
This is what is raising eyebrows in the investing world, as maintaining this kind of performance requires far more than just strong corporate earnings, but also continuously expanding valuations, sustained investor confidence, and an economic backdrop that supports a heightened level of continued optimism.
To be fair, this kind of three-year run, as an achievement, cannot be overstated. After the end of the war, the only times we’ve seen similar runs were in 1995-1997 during the dot.com boom, quickly repeated during 1996 – 1998, and 1997 – 1999. These periods are overlapping because the 1990s produced a whopping five years of consecutive 20% plus returns, creating multiple three-year windows that qualify. Outside of this single window, no other postwar period can match what the market is doing right now.
Assuming everything remains steady through the rest of the year, the 77.5% culumative gain since the end of 2022 translates to roughly 21% in annual returns. Let’s look at a portfolio worth $100,000 in 2023, which would now have earned $77,500 in gains. These kinds of returns might feel permanent as they are taking place, which is why people believe that staying invested is the only option, because they think this is going to continue indefinitely.
The Historical Precedent: What Follows This Banner Market
What happened in the year following the dot-com triple run is the clearest guide of what we could be in for in 2026. The pattern is pretty consistent, though just how much things will be impacted is the question nobody can answer right now.
After the 1995-1997 streak, 1998 delivered a run that led to another 26.7% in gains, and in 1999, the momentum continued, adding another 19.5% in S&P 500 gains. The thing is, the market didn’t just reverse itself suddenly. In reality, the bull market carried on for another two years, pushing valuations higher and higher. Finally, the reversal hit like a lightning bolt in March 2000, and it was severe as the S&P 500 fell 49% from its peak over the next 2.5 years.
After the 1997-1999 streak, the year 2000 saw a modest negative return before the full decline really began to pick up steam moving into 2001 and carrying itself through 2002. Ultimately, this leads us to believe that three years of consecutive returns could be followed by one or two more years of positive returns before a significant market downturn.
The key takeaway here isn’t that the market is going to crash immediately after the three-year streak ends in just under two weeks. Instead, it’s that these streaks occur late in bull markets, and the additional gains that come after are what push the already high valuations to unsustainable levels that cause the eventual collapse. The late 1990s produced a historically long streak of double-digit returns, but it also ended with one of the most devastating bear markets in recent memory.
For 2026, there are likely possible scenarios beginning with the most optimistic, which says the market delivers one more year of gains, similar to what happened in the mid-1990s, and then reversing in 2027 or 2028. The neutral scenario is that the market produces a more modest single-digit return, and valuations remain pretty consistent with where they are today. The more pessimistic scenario is also the most concerning in that the reversal begins in early 2026.
Investor Takeaways: Preparing for the Post-Streak Market
If you are an investor in the market, the message is pretty clear heading into 2026 as three consecutive years of double-digit gains mark a late-stage bull market condition where overall risk is dramatically increased. The smart move isn’t trying to time the exact peak before the decline, it’s recognizing right now that the risk-reward equation is shifting toward greater unfavorability and adjusting your portfolio accordingly.
For investors who have been or remain heavily concentrated in growth stocks and mega-cap technology, starting to rebalance a portfolio is urgent. The stocks that may be delivering the biggest gains are also the very same stocks that are going to be the most vulnerable during any reversal, as they have the highest valuations. Taking profits and rotating toward dividend-paying value stocks, defensive sectors, or even adding international equities reduces your exposure.
Better yet, increasing your allocation to income-generating assets like the Schward US Dividend Equity (NYSE:SCHD) or the Vanguard Dividend Appreciation ETF (NYSE:VIG) will help protect your downside by using dividends to cushion returns when prices fall. You can even consider more bond exposure through funds like the Fidelity Total Bond ETF (NYSE:FBND) that adds stability since bonds typically rise when stocks fall.
Building a cash reserve of 10% or even as high as 20% could also create an opportunity for investors who want to buy when things get low. Holding cash might feel uncomfortable during a rally like this three-year one we’re currently in, but it’s invaluable when quality stocks are available at a discount. If your portfolio has grown 77% over the past three years, much of that has come from multiple expansions that can reverse quickly. Locking in these gains while shifting toward dividends is going to provide predictable income while reducing valuation risk. The tradeoff might be giving up a little upside, but protection against a potential 50% decline far outweighs the risk of missing a 10% gain.