A reader asks:

I was doing my net worth over the last year, and found this to be very interesting. I asked AI if the last year return of the S&P 500 of 30.6% is one of the biggest. It was not, most likely #7 or #8. Either way, this is rarified air here, and all points are we are not at the peak given the earning reports. What does your data say?

I’ve been getting a lot of questions from people recently to have me check the work done by an AI model.

I guess it’s good news that I haven’t been supplanted by the robots just yet.

I’m a sucker for a good research project on market history like this.

Let’s take the data back to 1975 just because I like round numbers.

From the start of 1975 through the end of April, the S&P 500 was up 12.5% per year.

That’s really good.

How good you might ask?

Ten thousand dollars invested in the S&P 500 at the outset of 1975 would be worth $4.2 million today. Compounding is amazing.

Now let’s dig into the one year returns in question.

I calculated the rolling 12 month total returns on the S&P 500 going back to 1975. The stock market was in fact up 31% over the past year.

But that wasn’t even close to the best one year return of the past 50 years:

The best 12 month return was a gain of 61% which occurred in the early 1980s.

That kicked off the start of an epic bull market coming out of back-to-back recessions caused by Paul Volcker and company to finally snuff out sky-high inflation.

The worst 12 month return was a loss of 43% which took place during the Great Financial Crisis.

The 31% return of the past 12 months ranks in the 88th percentile of one year returns since 1975. Here’s the ranked distribution of one year returns since 1975:

That is a pretty darn good return.

Returns of 40% or more happened 22 different times. The index was up 50% or more in a 12 month period 7 times.

The stock market was down in 17% of 12 month returns. It experienced double-digit losses 8% of the time and was down 20% or more in just 3% of one year returns.

The big question here is what happens to the stock market after a big up year like we just went through.

I looked at the average 12 month returns following a gain of 30% or more in the previous 12 months. It was 11.1%.

So it’s hard to say.

All of the AI earnings growth might be priced in. Maybe this is a melt-up that has further to run.

Predicting the stock market over a 12 month period is nearly impossible because the range of returns can vary so widely.

We covered this question on an all new Ask the Compound live from New York City:

Bill Sweet joined us on the show again this week to tackle questions about why stocks are up, how consumption taxes work, foreign tax credits, how to save for college, retirement planning for small business owners and how to sell low cost basis stocks.

Further Reading:
31 Years of Stock Market Returns