Barring a collapse in the last few weeks of the year, U.S. stocks will post their ninth consecutive calendar-year gain once you include dividends. The only other time the S&P 500 has advanced for nine straight years on the basis of total returns was in the 1990s, when stocks were positive every year from 1991 to 1999.
The S&P 500 has returned 20.5% in 2017. So this will also mark the seventh year out of the past nine that it has finished with a double-digit gain.
Gains of this magnitude are sure to make some investors nervous. There have been calls of “too far, too fast” and “the easy money has been made” throughout the current bull market. But double-digit gains are not an outlier in the stock market; they are the norm.
And as you consider 2018, remember that double-digit gains are just as likely.
Over the past 90 years, the S&P 500 has shown 66 calendar-year gains and 24 losses. This means stocks have advanced roughly three out of every four years. And in that time, the annualized return was 9.6%.
Averages never tell the whole story and calendar-year returns are rarely average in the stock market. Of those 66 positive annual gains, the average return was almost 21%. And 51 of those 66 years saw double-digit returns. In fact, the year finished with a gain in the range of 8% to 12% in just four of the past 90 years, less than 5% of the time. Stocks have finished the year with a gain in excess of 20% one-third of the time.
A similar pattern appears when stocks fall. The average annual loss during down years was 14%. Of the 24 down years, 11 had double-digit drops. On six of those occasions, stocks fell 20% or more. When the up and down years are combined, we see that 70% of all calendar-year returns are double-digit gains or losses.