The S&P 500 just pulled off a rare feat, and it’s one that’s ended badly before

Trade war tensions, shifting policy goalposts, and lingering inflation drove sharp swings in U.S. stocks in 2025. But zooming out, the S&P 500 Index may be in the midst of one of the strongest growth streaks in its history.

The S&P 500 closed out 2025 with its third consecutive year of gains exceeding 15%, a feat the index has achieved only twice before, during the dot-com boom of the late 1990s and the 2019–2021 rally following the pandemic shock.

However, there’s an important caveat.

In both prior instances, the market suffered steep declines in the period that followed. From 2000 through 2002, the S&P 500 fell between 10% and 23% in each of those years.

More recently, the index dropped more than 19% in 2022, marking one of its worst annual performances on record.

Still, the market’s resilience in 2025 suggests there may be more driving stocks than trade war headlines and inflation worries alone.

Corporate earnings have held up better than expected, balance sheets remain relatively strong, and investors continue to pour capital into the market amid expectations that interest rates will eventually come down.

At the same time, heavy investment tied to artificial intelligence, ongoing share buybacks, and limited alternatives to stocks have helped sustain demand despite elevated valuation risks.

Big Tech mega caps power the rally

The artificial intelligence boom has arguably been the single biggest catalyst behind the S&P 500’s continued surge, even as trade war tensions rattled markets.

Industry data shows that roughly 4% of S&P 500 companies accounted for more than half of the index’s gains, underscoring the market’s heavy concentration in a familiar group of mega-cap technology leaders.

That group includes hyperscalers with massive demand for data centers and AI-intensive applications, such as Apple, Amazon, Alphabet, Meta Platforms, and Microsoft.

Since 2022, chipmaker Nvidia has been a standout contributor, propelled by its central role in AI infrastructure spending and its rapid rise in market capitalization.

At the same time, there are growing signs that the rally has begun to broaden beyond Big Tech. Small-cap stocks, long among the market’s most battered segments, staged a comeback in 2025. The Russell 2000 finished the year up more than 11%.

According to Dow Jones, smaller companies benefited from rising expectations of interest rate cuts and surprisingly resilient economic growth, at least at the revenue level.

Still, analysts caution that the outlook for small caps remains closely tied to monetary policy. Brian Mulberry, a portfolio manager at Zacks Investment Management, said sustained profitability in the segment will depend on rates continuing to move lower.

“The number of profitable small-cap companies will likely decline if interest rates don’t fall meaningfully,” Mulberry said.