S&P 500’s 3-Year 10%+ Return Streak: 2026 Market Outlook and Risk Factors

This report analyzes the MarketWatch article [1] published on December 28, 2025, which highlights the S&P 500’s rare three-year streak of 10%+ annual returns (2023: 23.79%, 2024: 23.95%, 2025: 17.39% [0]). The article notes that while historical patterns show fourth-year (2026) gains are typically more moderate, a fourth year of positive returns is not impossible.

Key valuation metrics—Shiller CAPE ratio (39.42) and P/E ratio (27.88) [0]—are well above long-term averages, signaling elevated market valuations. These metrics suggest future returns may face headwinds, as high valuations historically correlate with lower subsequent returns.

Affected instruments include all S&P 500 constituents, broader U.S. indices (NASDAQ, Dow Jones Industrial Average), and related sectors. The article’s release may temporarily reinforce positive market sentiment, while medium- to long-term dynamics hinge on resolving the tension between historical trends and current market drivers.

1. Historical vs. Current Dynamics
   : The S&P 500’s three-year streak is a rare occurrence, with historical data showing fourth-year returns are typically more moderate. However, this precedent does not rule out further gains, as unique market conditions (e.g., monetary policy, corporate earnings) can deviate from historical norms.
2. Valuation Headwinds
   : Elevated Shiller CAPE and P/E ratios [0] indicate potential overvaluation, which could limit 2026 returns even if positive.
3. Sentiment Impact
   : The article’s tone, which acknowledges the possibility of a fourth strong year, may temporarily boost investor confidence. However, this effect is likely short-lived without supporting economic or earnings data.

• Risks
  : High market valuations [0] increase correction likelihood; historical precedents of downturns after prolonged positive streaks; investor overconfidence; external factors (interest rate hikes, global economic slowdowns, geopolitical conflicts).
• Opportunities
  : Continued robust corporate earnings growth, accommodative monetary policies, or positive economic shocks could support a fourth year of gains, though likely at a more modest rate than 2023–2025.

The S&P 500 has achieved three consecutive years of 10%+ annual returns (2023: 23.79%, 2024: 23.95%, 2025: 17.39% [0]). Current valuations are elevated (Shiller CAPE: 39.42, P/E: 27.88 [0]), and historical data suggests 2026 returns will likely be subdued compared to the past three years. A fourth year of positive returns is not impossible, but decision-makers should closely monitor key variables (corporate earnings, monetary policy, external risks) to assess market direction.