If Wall Street can get through January, the signals become a lot friendlier for bulls
The S&P 500 Index (SPX) has posted respective gains of 24%, 23%, and 16% over the past three years. Since 1950, that’s only the eighth time the index has delivered double-digit returns in three consecutive years.
In this article, I’ll examine the historical data to see how stocks have performed following similar streaks. This is the second year of Donald Trump’s presidency, too, so I’ll show why this is a concern for the first half of 2026.
Risk and Reward After 3-Straight Double-Digit Years
The table below lists the eight instances in which the SPX posted gains of at least 10% for the third straight year. It breaks down returns for the next January, first half, and full year. The returns are summarized at the bottom, and then I also summarized all years since 1950 for comparison.
The bad news is that the summarized returns underperform, by a lot. After three straight double-digit years, January averages a loss of 1.05%, compared to the typical January return of 1.07%. The next full year averaged a return of just 3.03%, with 43% of the returns positive, compared to the typical annual average return of 9.58% with 73% positive.
However, I see some glimmers of hope. Three of seven prior instances show double-digit gains in the fourth year, including a 27% gain in 1998, after three straight 10%+ gains in 1995-1997.
Presidential Cycle Years Add a New Wrinkle
For the numbers below, I went back to 1949, since it was the first year of the four-year presidential cycle. Right now, we're in the second year of the 20th four-year cycle. The third-year outperformance is well known, but what is not often discussed enough is the underperformance in the second year of the cycle.
The average SPX return for the second year was about 4.6%, with barely half of the second-year returns positive (53%).The fourth year of the cycle has the next worst average return at 8.1%. The next worst performer is the first year, which has been positive 65% of the time, while the third and fourth years were positive over 80% of the time.
The second-year underperformance isn’t nearly as stark as the third-year outperformance, and that could be the reason it gets overlooked. However, the underperformance is glaring when looking at just the first half of the year.
The next six months could be awful for stocks. From January through June in the second year of a presidential cycle, the SPX averaged a loss of over 2%, with 53% of the returns positive. This is a seasonality headwind that could stop the SPX from securing its fourth-straight, double-digit annual gain.
It’s worth noting there have been only two instances where the first year of the cycle also marked the third consecutive 10%+ annual gain (the situation we’re in now). Those years were 1997 and 2021. As shown in the first table of the article, the SPX fell 19% in the year following 2021, while it gained more than 26% in the year after 1997.
In both years, the January return was a good early indicator. The SPX gained more than 1% in January 1998, while in January 2022 it fell over 5%. Perhaps we should pay more attention to the January Barometer this year. If you’re not familiar with this indicator, keep an eye out for my articles over the next few weeks. I’m sure I’ll be touching on it.