Historical Data & What to Expect in 2025

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• The S&P 500 has gained about 10.5% annually since its introduction in 1957. 
• The S&P 500’s annual average return in 2023 was 26.3%, a significant increase from the -18.1% return in 2022.
• Returns may fluctuate widely yearly, but holding onto investments over time can help.

Looking at the stock market on a short-term basis can be nerve-wracking, as it’s common to see the market go up and down. Over the long run, however, the market as a whole tends to trend up and provide significant returns to patient, long-term investors. 

Measuring stock market returns depends on how you define the market, but a common benchmark for the U.S. is the S&P 500. 

The S&P 500 comprises the stocks of the 500 large publicly traded companies in the U.S. While it excludes smaller companies, the S&P 500 is often considered a good proxy for the market overall. That’s because the financial performance of these large, well-known companies — like Apple, Pfizer, and Starbucks — tends to be closely tied to broad economic trends like consumer spending and business investment.

That said, looking at other indexes like the Russell 2000, which contains around 2,000 small companies (by public company standards), or the Dow Jones Industrial Average, which contains 30 large companies, can still provide insights into the strength of the overall stock market, and these stock indexes typically move in the same direction as one another, even if returns aren’t exactly the same. 

The specific choice of benchmark may depend on your investing style, but for general stock market analysis, many people turn to the S&P 500.

Regardless of which benchmark you choose, looking at average stock market returns can help you set realistic expectations of what’s to come. Although past performance is never a guarantee of future results, it can help to understand that if the future does end up resembling the past, then stock market returns may be similar.

And seeing that the S&P 500 has returned over 10% per year on average, for example, may give you more confidence in investing in the stock market vs. more conservative investments.

“Investing can be a good way to grow wealth over the long term and offers the potential for higher returns compared to a typical checking or savings account,” says Jordan Gilberti, CFP and senior lead planner at Facet.

Important: Average stock market returns, when looking at indexes like the S&P 500, reflect a diversified range of stocks. The performance of individual stocks can vary significantly from these diversified averages.

Historical average stock market return

Some years the stock market goes up a lot, some years it’s down a lot, and some years it hardly changes at all. So if you’re only investing for a short period of time, such as one year or less, that’s when the stock market can feel like a big gamble. 

Historically, however, long-term returns are positive, so if you can stay in the market for several years — or even decades when investing for retirement, for instance — that’s when you might be able to really enjoy compounding gains.

Long-term average

Since the S&P 500 was introduced in 1957, its annual return, including dividends, has averaged a little over 10% through the end of 2023, according to DQYDJ. Going back even further to 1928, using data from other large-cap indexes to account for the period predating the S&P 500, the annual return averages out to 11.66%. And if you had invested $100 in 1928, you’d have nearly $800,000 as of the end of 2023, according to data compiled by NYU Stern professor Aswath Damodaran.

However, the year-to-year gains vary widely from these numbers. For example, here’s how the yearly annual returns from the S&P 500 have looked over the past 10 years, including earnings from dividends, according to Berkshire Hathaway.

For the 10 years ending in August 2024, the S&P 500 has outpaced the historical average a bit, returning an annual average of 12.9% with dividends, according to DQYDJ. 

This is similar to the 12.4% return of the Russell 3000 index, which represents almost the entire U.S. equity market, while the smaller Russell 2000 index hasn’t been quite as strong over the past decade but has still moved in the same direction, with a 7.7% annual gain, according to LSEG. Yet there have been other periods where smaller companies did better, and over the long run, these different stock market indexes tend to be pretty close.

Inflation-adjusted return

While the S&P 500’s 10%+ average annual returns outperform many other investments — including Treasury bonds, corporate bonds, gold, and residential real estate, as Damodaran’s data shows — it’s important to consider the impact of inflation.

From 1957 to 2023, the S&P 500’s average inflation-adjusted return was 6.4%, according to DQYDJ, meaning it exceeded the inflation rate by 6.4% per year.

This does not necessarily mean that inflation makes other assets better long-term investments, since all assets face the same underlying inflation rate. Hypothetically, for instance, if gold returned 9% in a year with 3% inflation, and stocks returned 10%, the real return would be 6% for gold and 7% for stocks.

That said, accounting for inflation may affect your investment decisions based on factors such as your risk tolerance and your conviction that certain assets might perform better than others during periods of high inflation. However, because it’s very hard to predict economic conditions and investment returns — the only thing we really know is that stocks tend to outperform over the long term — you shouldn’t necessarily get too caught up in weighing inflation-adjusted returns. 

Perhaps a better use for this metric is assessing how much your money can grow in the future if history repeats itself. For example, instead of calculating what your retirement account might look like if averaging 10% annual returns, you might calculate what it would be based on 6-7% inflation-adjusted returns to see what your account balance might grow to after factoring in inflation. 

Variability

Despite the strong annual average of the S&P 500 and many other indexes, it’s important to realize that returns can vary significantly from year to year. Some years have double-digit positive returns while some are in the double-digit negatives. 

For example, in 1928, the equivalent of the S&P 500 gained 43.81%, but the Great Depression then followed, with annual returns of -8.30%, -25.12%, -43.84%, and -8.64% from 1929 to 1932. Then in 1933, the market bounced back with a 49.98% gain, only to then fall again slightly in 1934 with -1.19%. But if you pulled your money out then, you would have missed out on the 46.74% gains in 1935.

This same dynamic has played out throughout history, such as during the Great Recession and even as recently as 2021 to 2023, which saw the market bounce up and down.

These trends exemplify how short-term investing can be risky, yet if you stay invested for the long term, you can still potentially navigate difficult periods like the Great Depression. When many years of returns are put together, the ups and downs of the S&P 500 annual returns start to smooth out in the sense that the long-term gains have been around 10% per year.

Factors influencing stock market returns

While the stock market fairly reliably trends upward over the long run, that doesn’t happen in a vacuum. At their core, stocks reflect the future value of a company that investors are willing to pay today. Some of the underlying factors that affect these valuations include:

Economic growth

When the economy overall is strong, that tends to lead to higher stock market returns. For example, if unemployment is low, that contributes to consumers having money to spend compared with periods of high unemployment where individuals may pull back from spending, thereby affecting corporate profits. Other factors like GDP growth also indicate if the economy is expanding, which is a good sign for businesses being able to earn more revenue.

Interest rates

Typically, low interest rates boost stock prices while high interest rates hurt them. That occurs for a few reasons, such as how in a low-interest-rate environment, there can be more demand for stocks over other assets like bonds, since bonds aren’t paying much interest then. That demand can drive up stock prices. Also, low interest rates can help companies’ bottom lines, such as by making it less expensive to borrow money for investing in business expansion activities.

Corporate earnings

Publicly traded companies in the U.S. have to report their earnings every quarter, which reveals information like total revenue and profit. This data directly shows how companies have been doing financially, and these reports also tend to include future guidance. So, investors can use that data to weigh whether the stock price accurately reflects the company’s value in their view.

Investor sentiment

Markets aren’t always rational. There can be a psychological component too, with investor sentiment moving markets up or down, even if the financials don’t necessarily support that. For example, if investors start worrying about a possible recession, even if there’s not much indicating that’s likely, then they might start selling stocks. As that selling drives down prices, it might cause more investors to panic and sell, driving down the market further.

Geopolitical events

What’s happening globally can also affect the U.S. stock market. Wars in the Middle East, for example, can affect oil prices, which then affects companies’ energy costs and consumers’ budgets, so that might cause investors to sell stocks if they fear that geopolitical events could affect companies’ bottom lines.

The importance of diversified long-term investing

As yearly returns demonstrate, there’s a lot of variability in stock market returns. And because there are many factors that influence stock prices, it’s important to realize that even if conditions seem positive, such as if the economy is humming along, unexpected events like foreign wars could send the market tumbling. 

Moreover, if you look at the returns of specific stocks, rather than broad indexes, you might see even more variability. The largest companies now might seem like sure bets, for example, but if you look back in time, you’ll see that many of those at the top eventually lose their status. The S&P 500 continuously rebalances to reflect companies that are growing or shrinking, so the 500 companies in there now might not be the same as what will be there in five, 10, or 50 years. 

“Investing carries risks — you may be subject to losses and may even lose all the money you put into an investment,” Gilberti notes. 

That’s why many experts suggest diversifying your investments, such as putting money into an index fund that reflects a broad range of stocks, not just one company. Investing experts, including Warren Buffett and investing author and economist Benjamin Graham, also say the best way to build wealth is to keep investments for the long term, a strategy called buy-and-hold investing. 

There’s a simple reason why this generally works. While investments will likely go up and down with time, keeping them long-term helps even out these swings. Like the S&P 500’s changes noted above, maintaining investments for the long term could help investments and their returns get closer to that average. 

Also, it’s worth noting that annual returns are calculated in a way that may not represent actual investing habits. The figures are based on data from the first trading day of the year compared with the end of the year. But the typical investor doesn’t buy on the first of the year and sell on the last. While they’re indicative of the growth of the investment over the year, they’re not necessarily representative of an actual investor’s return, even in one year. 

Also, indexes are not directly investable. Investors often turn to index funds that invest in the companies that comprise the indexes, but these funds charge fees that cut into returns. The fees are usually low for index funds, but the higher they are, the more you generally lag the index.

In other words, your personal rate of return might not exactly match broader stock market indexes like the S&P 500, depending on factors like when you invest and what funds you invest in. Still, over the long term, buy-and-hold investors tend to experience significant gains.

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What to expect in 2025 and beyond

Recent turbulence in August and September 2024 might sour your view of the stock market, but again, zooming out shows a better picture, with the S&P 500 approaching 20% gains for the year. But will this trend continue into 2025 and beyond?

You can find plenty of expert predictions for specific years or even shorter periods of time, but remember, long-term investing tends to win out. So, rather than trying to figure out whether the stock market will go up or down in just 2025, it’s worth considering that most experts view the historical trend of the stock market gaining value as likely continuing for the foreseeable future.

That said, 10% may be a little on the high end. Many experts are a bit more conservative with their projections. For example, for 2024-2033, Charles Schwab projects that U.S. large-cap stocks will average 6.2% compounding returns, U.S. small company stocks will return 6.3%, and international large caps will average 7.6%. In comparison, Schwab forecasts annual returns of 5.7% for U.S. investment-grade bonds and 3.6% for cash equivalents.

Other long-term forecasts, compiled by Morningstar, show U.S. equities returning between 4-7% on average over the next 10-15 years, with higher expectations for international stocks. In most cases, these predictions still see U.S. stocks outperforming U.S. corporate bonds.

Much depends on what happens with factors like inflation, interest rates, economic policy, and how current geopolitical conflicts play out. But as history has shown, even when the stock market has some struggles, it tends to provide positive returns over the long term.

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