This blog post was written in late December ’25 just to think through the various variables impacting equity market returns, but one of the easier ways to analyze historical market returns is to just assume that double-digit returns will not extend forever.
After three years of actual returns for the SP 500 of:
- ’25: +17.88%
- ’24: +24.87%
- ’23: +26.37%
it would be safe to assume that just a “reversion to the mean” type year for the SP 500 would be single digits, either mildly negative or mildly positive.
What was interesting about 2025 is the strong returns of formerly-dormant asset classes like international equity (and bonds too) and emerging market equity.
These so called non-correlated trades went nowhere for years – international equity had it’s best year since 2006 – in 2025.
Now, Iran has changed the 2026 investment landscape entirely, and has tossed a wrench into the “rotational” trade that made sense, at least until the sir strikes.
The difficulty is trying to distinguish stocks, sectors and asset classes, which might suffer real impairment from Iran as the US works through this conflict, from the stocks, sectors and asset classes that are simply correcting normally, albeit driven by the headlines.
The “Liberation Day” correction that happened from late January ’25 through early April ’25, saw a 20% peak-to-trough correction.
That’s the last period where investor saw a good dose of fear in terms of investor sentiment.
Looking at historical returns for the SP 500, here’s the last period the SP 500 saw similar returns to ’23 – ’25:
- ’21: +28.75%
- ’20: +18.2%
- ’19: +31.8%
Except for 2019, these SP 500 annual returns were monetary policy and “zero interest rate” driven, but guess what the SP 500 returned in 2022 ?
’22: -18.11%
Quick summary: Someone once referred to the SP 500 patterns of return as “sequencing of returns” and it’s a valid point, but the larger point is that after 2 -3 years of robust equity market returns, investors tend to see single-digit numbers.
That’s not a prediction, but patterns matter.
The US equity market probably needs a good dose of extreme fear to put in a tradeable bottom after the spike in crude oil.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Readers should gauge their own comfort with portfolio volatility and adjust accordingly.
Thanks for reading.