Reviewing the Recent Decade of Gains
The last ten years have marked a period of exceptional growth for the S&P 500 index. Specifically, the index recorded annual gains of at least 16% in six of the past seven calendar years, spanning from 2019 through 2025. Furthermore, the return year-to-date for 2026 stands at 11%, suggesting the S&P 500 is on track for its fourth consecutive year of double-digit appreciation.
The Vanguard S&P 500 ETF (VOO) has demonstrated an average annual return of 15.5% over the past decade. This figure significantly surpasses the index’s long-term historical average annual return, which is closer to 10%. While current returns should not be used to predict the future, recent performance suggests the index may not face significant stagnation. However, the future outlook is contingent upon several factors, including whether the current artificial intelligence (AI) market boom subsides, and what happens with global economic growth, interest rates, and inflation.
Key Factors Behind the S&P 500’s Rise
Several powerful market forces contributed to the robust performance of the S&P 500 over the past decade. These catalysts include:
- Ultra-Low Interest Rates: The decade began with the federal funds rate near zero. Although the central bank attempted to raise rates in the late 2010s, rates were dropped to zero during the COVID-19 pandemic, remaining there for two years. This period of low rates fueled growth and stock prices, preceding the inflation shock experienced in 2022.
- Pandemic Stimulus: During the global health crisis, governments worldwide injected trillions of dollars into their economies to sustain them. Since many service sectors were closed, consumers adjusted their spending habits, increasing demand for durable goods. A substantial amount of this liquidity remains active in the financial system.
- The AI Boom: The technology sector has committed trillions of dollars to developing AI capabilities over the recent years. This resultant earnings surge is anticipated to continue for at least the next few quarters.
Collectively, the combination of high liquidity, persistently low interest rates, and the technological revolution helped elevate the S&P 500 by more than 300% over the past ten years. Key data points for the Vanguard S&P 500 ETF (VOO) include an Assets Under Management (AUM) of $1.8 trillion, a Dividend Yield of 1.05%, and an Expense Ratio of 0.03%. Its top holdings include NVDA (8.09%), AAPL (7.04%), and MSFT (5.70%).
Potential Headwinds and Future Expectations
Despite the impressive recent performance, the next decade faces several potential challenges. The current market environment is viewed as more challenging than the past period.
Several metrics suggest caution: the inflation rate has remained above the Federal Reserve’s target of 2% for the last four years and has shown little sign of regression toward that goal. Furthermore, the Shiller CAPE ratio, which compares S&P 500 stock prices to inflation-adjusted earnings over the past 10 years, is currently close to an all-time high, suggesting elevated stock valuations.
Market expectations also include the possibility of the Federal Reserve raising rates multiple times over the next six to 12 months, alongside ongoing discussions regarding the need to regulate and potentially slow AI development to allow safety measures to catch up.
While discussions about a “lost decade”—akin to the period between the tech bubble and the financial crisis—are likely to resurface, expectations for the next decade’s returns should be set lower than those achieved previously. Nevertheless, historical trends indicate that the U.S. economy has a consistent ability to expand over the course of a century. While this expansion may or may not translate into massive returns for the S&P 500, investors are generally expected to receive some form of reward regardless of the index’s trajectory.
