S&P 500 Closes Third Straight Year of Gains as Bull Market Extends into 2026: What’s Driving the Rally?

• How Historic Is This S&P 500 Rally?
• Why Are Analysts Bullish for 2026?
• Tech Cool-Off: Healthy Correction or Warning Sign?
• Defense Stocks: The Market’s Surprise MVP
• Election Cycles and Market Stalls: What History Shows
• FAQs: Your Bull Market Questions Answered

The S&P 500 has defied skeptics yet again, wrapping up its third consecutive year of gains in 2025—and analysts now project the bull run could stretch into 2026. With the Fed cutting rates, tech valuations cooling, and defense stocks surging, this market has shown remarkable resilience. But can it last? Here’s a DEEP dive into the forces shaping this historic rally.

How Historic Is This S&P 500 Rally?

Since adopting its modern FORM in 1958, the S&P 500 has posted annual gains in 75% of calendar years—but the current streak stands out. The index has delivered 20%+ returns in 19 years while declining only 17 times. The past three years alone saw an 87% cumulative return through October’s peak, placing this run in the top 5% of all comparable periods historically. "These odds favor bulls long-term," notes the BTCC research team, "but post-streak returns tend to weaken."

Why Are Analysts Bullish for 2026?

Two factors dominate Wall Street’s 2026 outlook: earnings and Fed policy. Corporate profits are projected to grow at double-digit rates next year, while the Fed has already cut rates by 175 basis points over 15 months—with more expected. This combo explains why consensus forecasts suggest another 10%+ advance. "It’s not just about Big Tech anymore," says a BTCC market strategist. "Equal-weighted S&P 500 is up 10.7% this year—participation is broadening."

Tech Cool-Off: Healthy Correction or Warning Sign?

The Nasdaq 100’s P/E ratio has dipped to 26—below its two-year average—while its valuation premium over the S&P 500 hit a six-year low. AI darlings have shed their "invincible" aura, speculative trading eased, and 57.5% of S&P 500 stocks now carry "Buy" ratings (matching February 2022’s pre-bear market high). "This reset creates opportunities," observes TradingView data, "but pick your spots—Nvidia, Alphabet, and Broadcom alone accounted for a third of this year’s index gains."

Defense Stocks: The Market’s Surprise MVP

Aerospace/defense stocks in the S&P 1500 soared 41% in 2025—their best year since 2013—outpacing both the S&P 500 and the "Magnificent Seven" by 16 percentage points (CNBC data). Rheinmetall, Saab, and Leonardo rallied on European military budget hikes, while RTX and Northrop Grumman gained on projects like the Golden Dome missile shield. But caution flags emerged: drone makers Kratos (100x forward P/E) and AeroVironment (-40% from October highs) show sector risks.

Election Cycles and Market Stalls: What History Shows

Midterm election years often bring prolonged price stagnation—a potential headwind for 2026. However, this year’s 16.2% S&P 500 gain wasn’t narrowly driven. "Unlike 2021-2023, we’re seeing rotation, not just concentration," notes FactSet. That said, Lockheed Martin’s 16x P/E looks tame next to Palantir’s 190x, reminding investors that discipline matters.

FAQs: Your Bull Market Questions Answered

How reliable are the S&P 500’s historical gain probabilities?

While the index has risen in 75% of years since 1958, past performance doesn’t guarantee future results—especially after strong multi-year runs.

What’s the biggest risk to the 2026 bull case?

Valuation extremes in sectors like defense tech (100+ P/Es) could spark volatility if growth disappoints.

Why are equal-weighted S&P 500 returns lower?

Market-cap weighting gives outsized influence to mega-caps—hence the 16.2% vs. 10.7% gap this year.