While past market performance offers guidance, returns in 2026 remain uncertain. Analysis of SPY and QQQ trajectories reveals long-term growth potential, but volatility and macroeconomic shifts pose risks for investors.
- SPY has averaged 8.7% annual returns over the past 25 years
- QQQ delivered a 10.3% compound annual growth rate since 2000
- SPY experienced three 20%+ drawdowns in the last 25 years
- QQQ saw a 35% peak-to-trough decline during the 2022 bear market
- Current forward P/E ratios for SPY (21.4) and QQQ (30.7) are above 20-year averages
- Historical data supports long-term equity exposure but warns of short-term volatility
The stock market’s long-term trajectory has historically favored patient investors, but 2026 presents a nuanced outlook. Data from the past 25 years shows that the S&P 500 ETF (SPY) delivered an average annual return of 8.7%, with positive performance in 19 of those years. Similarly, the Nasdaq-100 ETF (QQQ) posted a compound annual growth rate of 10.3%, driven largely by technology sector strength. These figures underscore the enduring power of equity exposure over time, particularly in growth-oriented indices. However, historical consistency does not guarantee future results. Since 2000, SPY has experienced three drawdowns exceeding 20% within a 12-month period, including in 2008, 2020, and 2022. QQQ, due to its heavy weighting in technology, has seen even sharper swings, with a 35% peak-to-trough decline during the 2022 bear market. These episodes highlight that while long-term trends are favorable, short- and medium-term risks remain significant. The current environment in late 2025 features elevated valuations, with SPY trading at a forward P/E of 21.4 and QQQ at 30.7—well above the 20-year averages of 16.2 and 22.3, respectively. This suggests markets may be pricing in optimistic growth expectations that could be fragile under economic stress, such as higher interest rates or a slowdown in consumer spending. In this context, investors should consider diversification and risk management. A strategic allocation to equities—particularly in sectors like technology and consumer staples—may still be viable, but with a focus on quality, cash flow generation, and defensive characteristics. The path to 2026 is likely to be marked by volatility, but history indicates that disciplined investing through downturns can yield substantial rewards over time.