The Pyramid of S&P 500 Returns (1874-2024)
January 3, 2025
By Dorothy Neufeld, Visual Capitalist
The S&P 500 soared 23% in 2024, beating virtually every forecast as AI enthusiasm and the tech sector fueled returns.
Over the past two years, the index has climbed 53%, marking one of its strongest two-year performances since the late 1990s. This has pushed the S&P 500’s cyclically adjusted price-to-earnings ratio (CAPE) to near-record levels, but despite these valuations, many analysts remain cautiously optimistic for the year ahead.
This graphic shows S&P 500 annual returns over the last 151 years, based on data from TradingView.
S&P 500 Annual Returns in Perspective
As the S&P 500 posted another banner year, we can see in the table below how annual returns between 20% to 30% have occurred 14.6% of the time over the past 151 years:
Looking back, many forecasters expected the S&P 500 to see modest gains, with many projections falling in the middle of the bell curve of historical returns.
Goldman Sachs, for instance, forecasted 5-10% returns in 2024, but by March the S&P 500 had already exceeded this target. In July, Bank of America projected that returns had hit their peak for the year, but the index continued to rally another 8%, underscored by a strong U.S. economy, Fed monetary easing, and Trump’s election victory.
Overall, the Magnificent Seven stocks drove more than half of the S&P 500’s returns, with Nvidia’s share price surging by 171% and Tesla shares rising 63% in 2024. Together, the capital spending of these companies is greater than the entire U.S. energy sector, with investments in frontier technologies averaging $400 billion annually.
Bull Market Expected to Continue in 2025
For 2025, the majority of institutions expect the S&P 500 to provide positive returns in the 10% to 20% range.
However, other analysts have noted that a third consecutive year of 20% returns or more is historically rare.
“The S&P 500 just registered two 20%+ years in a row, something which occurred just ten times since 1871. Only during the 1990’s bull market and the Roaring Twenties did the good times continue for another two years.”
–Michael Cembalest, J.P. Morgan
Among the key factors that could support the U.S. stock market are falling interest rates, deregulation, and lower corporate taxes. Between 2000 and 2019, interest rate declines and tax cuts drove more than 80% of S&P 500 margin expansion. Going further, deregulation has been shown to support small business capital spending, which boosts economic growth.
On the other hand, tariffs could raise prices and inflationary pressures could present headwinds to GDP growth and the U.S. stock market. With all of these various factors to consider, it’s no surprise that many forecasters are also expecting more volatility in the markets for 2025.
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