What happens when the S&P 500 climbs more than 25% in a year? This chart shows midteen gains usually follow.

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Undoubtedly, 2021 has been a great year for US stocks.

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s&p 500 index spx,
+0.07%
Leading to a 27% annualized gain as of Friday, the last day of trading in a year when the highly transmissible coronavirus variant has put the pandemic at the forefront.

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While such outsized stock-market gains have been rare enough over the past 70 years, according to a review of historical S&P 500 performance by Truist Advisory Services, past performance suggests 2022 may still be a strong year for returns.

Indeed, Keith Lerner, Truist’s co-chief investment officer, found that the S&P 500 has produced an annual return (including dividends) of at least 18 times only since 1950. But in the following year, the broad-based index rose 82%. At the time, the average annual profit was 14% (see chart).

The S&P 500 has recorded 25%+ annual returns only 18 times since 1950

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Truist Advisory Services

“Two out of three years where stocks failed to rise, 1981 and 1990, coincided with recessions,” Lerner wrote in Friday’s client note. “Our work suggests that the risk of recession remains low in the near term.”

“The second negative market was 1962, which was challenged by a flash crash and deteriorating investor confidence,” wrote Lerner.

The year ahead will begin with the Federal Reserve’s monetary policies remaining highly favorable for financial assets, at least in their first few months. Pandemic support by central banks has been credited with undermining the global economic recovery while keeping credit flowing, but has pushed asset prices sometimes to worrying levels.

Dow Jones Industrial Average DJIA,
+0.18%
was set for a 19% annualized profit for 2021, while the Nasdaq Composite Index comp,
-0.29%
According to FactSet, about 22% advanced.

Fed Chairman Jerome Powell outlined plans in December to more aggressively reduce the central bank’s hallmark $120 billion in monthly pandemic bond purchases to tackle inflation that touched 1980 levels. It is targeting March as the program’s possible end date, after nearly two years. The Fed also penciled in three rated hikes in 2022.

Reading: Is the US stock market closed on Friday on New Year’s Eve? No, it doesn’t even close on Mondays. Why over here!

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