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By almost any historical measure, the last three years in the U.S. equity markets have been extraordinary. The S&P 500 index advanced 26.3% in 2023, 25.0% in 2024, and 17.9% in 20251 — three consecutive years of returns well-above long-run historical norms. That is an outcome worth celebrating for those able to participate. But celebration and complacency are different things, and we want to use this moment to step back and offer some important perspective.
We are not writing to sound an alarm. The economy remains resilient, and we maintain confidence int he long-term wealth-building power of a well-constructed portfolio. What we want is an honest conversation about market history, reasonable expectations, and a key principle that has always guided our work. Namely, the understanding that investing is a long-term endeavor best understood across full market cycles, not calendar-year snapshots.
The S&P 500 index’s average annual return going back to 1928 is approximately 10.0%.2 That context makes its 23.0% annualized return over the past three years genuinely rare. Worth noting, however, is that if we include the index’s 2022 returns – a challenging year in which the S&P500 fell 18.1% – the four-year annualized return works out to be approximately11.1%,3 much closer to its long-term historical average.
While the market can certainly continue higher from here, extended periods of above-average returns have a strong tendency to be followed by below-average ones.4 Still, after three years of exceptional returns, it is natural for some investors to subconsciously calibrate expectations upward. One of the subtler risks in investing is the quiet drift toward assuming recent experience represents a "new normal." It does not. The question is never whether a correction or a more volatile market environment will eventually arrive; it is whether investors are prepared when it does.
At Sapient, we have long believed the most productive way to think about investing is across full market cycles – encompassing both the expansions and the contractions – and then measuring performance across cyclical tops (peak-to-peak) or cyclical bottoms (trough-to-trough). A broad pattern of advance, excess, correction, and recovery has repeated throughout modern financial history with enough regularity to teach humility.5 Which is why a single exceptional year tells us relatively little, while a full cycle navigated with discipline tells us a great deal more.
Our "Win By Not Losing" investment philosophy was born from this thinking. The research is clear that deep losses are extraordinarily difficult to recover from, not only mathematically but also behaviorally. An investor who loses 40% needs a 67% gain just to get back to even. Additionally, the behavioral impacts of a severe decline – a mix of temptation to sell at the bottom along with reluctance to re-enter at higher prices – often compounds the financial damage in ways that are hard to quantify. Protecting capital during difficult markets is not a conservative concession, but rather one of the most important drivers of long-term wealth accumulation.6
In historical context, a year in which the S&P 500 returns 8-12% is not a disappointment, but rather an average-to-good year. And a year that is flat or even modestly negative is not a failure, but simply part of the broader market cycle and almost certainly coming at some point. This is why we think it’s also beneficial to think about portfolios with an absolute-return orientation. As in, what rate of return does each client genuinely need to achieve their goals, and how do we pursue those returns without taking on additional levels of unnecessary risk? This framework keeps us grounded when markets are exuberant, and steady when markets are fearful.
We are not predicting when or how sharply markets will correct, but rather positioning portfolios for a wide range of market environments. That means maintaining diversification, owning holdings we believe offer genuine value and durable returns, and being ready to act when opportunities arise and markets pull back.
We believe investing is a long game, and that the clients who build enduring wealth are rarely those who chased the best-performing years. Rather, they are the ones who stayed disciplined through all of them.
Sources:
1. Morningstar Direct, Data as of 12/31/2025, Accessed 05/18/2026.
2. Investopedia, “S&P 500 Average Returns andHistorical Performance.” May 14 2026: https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
3. Morningstar Direct, Data as of 12/31/2025, Accessed 05/19/2026.
4. Morningstar, “What We’ve Learned From 150 Yearsof Stock Market Crashes.” March 19, 2026: https://www.morningstar.com/economy/what-weve-learned-150-years-stock-market-crashes
5. ZForex.com, “Understanding Market Cycles”: https://zforex.com/blog/general-trading/understanding-market-cycles/
6. Firstlinks, “Winning by Not Losing: The SilverRule of Investing.” March 12, 2025: https://www.firstlinks.com.au/winning-by-not-losing-the-silver-rule-of-investing
Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance and yields are not indicative of future results. The S&P 500 index is unmanaged. Investors cannot invest directly in an index. Index performance does not reflect the deduction of fees, expenses, or taxes.
