The S&P 500 Just Had Its Best Quarter Since 2020 - History Says This Comes Next

After a rough start to 2026, the S&P 500 came roaring back. The benchmark index gained roughly 14% in the second quarter, marking its strongest quarterly performance since the COVID-19 rebound in 2020. That followed a first-quarter decline of about 4.3%, driven by the U.S.-Iran conflict, surging oil prices, and investor anxiety over massive artificial intelligence spending by the largest tech companies.

By the end of June 2026, the index was up about 10% for the first half of the year, putting it on pace for a fourth consecutive year of double-digit gains. The turnaround has raised a natural question: what tends to happen after a quarter this strong? Historical data offers some interesting, though far from certain clues. Here's what the numbers show and what it could mean for long-term investors focused on doing better financially in the years ahead.

What went wrong in Q1

The S&P 500 lost about 4.3% in the first quarter of 2026, its weakest opening quarter since 2025. The decline was concentrated in March, when the U.S.-Iran conflict escalated, and the Strait of Hormuz was partially closed to oil traffic, pushing Brent crude to $118 per barrel by quarter's end.

Tech mega-caps, including Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Microsoft (NASDAQ:MSFT), also weighed on the index as investors questioned whether hundreds of billions in AI capital spending would generate adequate returns.

The forces behind a 14% quarter

Several factors converged to drive the second-quarter rally:

• Iran peace talks progressed significantly: A U.S.-Iran interim agreement in mid-June reopened the Strait of Hormuz and sent oil prices tumbling more than 20% from their 2026 highs.
• Corporate earnings beat expectations: FactSet projected year-over-year S&P 500 earnings growth of 23.3% for the second quarter, up from 18.8% expected on March 3.
• AI investments showed early signs of paying off: Amazon, Alphabet, Meta, and Microsoft committed to a combined $650 billion or more in 2026 capital expenditure, most of it directed toward AI infrastructure.
• Tech IPO activity surged: SpaceX's (NASDAQ:SPCX) June debut headlined a quarter in which the IPO market generated over $131 billion in total proceeds.

What history says about similar quarters

Since 1950, the S&P 500 has posted a quarterly gain of 10% or more a total of 41 times, according to Ryan Detrick, chief market strategist at Carson Group. In those instances, the index rose the following quarter, and for at least two consecutive quarters, more than 85% of the time. The median return over the next 12 months was 13.4%, Detrick noted.

The Q2-specific signal

Narrowing the lens further, Detrick's data shows nine prior instances of the S&P 500 gaining 10% or more specifically in the second quarter. In those cases, the third quarter was lower only once, and the fourth quarter was never lower. When a double-digit second quarter has followed a negative first quarter, as it did this year, the subsequent quarter has been higher 16 out of 17 times.

Why this pattern may not be foolproof

Historical tendencies are not guarantees, and the 85% success rate means roughly one in seven times, the pattern failed to hold. Several risks could disrupt the current momentum. The bond market has priced in two Federal Reserve rate hikes by year-end, with Bank of America projecting three.

A fragile ceasefire in Iran could collapse, and massive AI spending raises the possibility that expenditure growth outpaces revenue gains. The Shiller CAPE ratio sits near historical highs, suggesting valuations may leave less room for error if earnings disappoint.

What long-term returns actually look like

Regardless of what the next quarter brings, one trend has remained remarkably consistent: the S&P 500 has historically averaged about a 10% annual return over the long run, according to Fidelity. That figure spans recessions, wars, pandemics, and financial crises. The forward price-to-earnings ratio for the Vanguard S&P 500 ETF (NYSEMKT:VOO) currently sits around 23, above its long-term average, but below its 2024 and 2025 peaks. Some market watchers view that as a sign valuations remain reasonable rather than overheated, particularly given current earnings growth trends.

Bottom line

The S&P 500's roughly 14% second-quarter gain is encouraging, and history suggests momentum like this often leads to further gains. But no single quarter, no matter how strong, tells you exactly what the next one will bring, and several economic and geopolitical risks remain in play.

The more enduring lesson from market history may be simpler than any single quarter's signal. FactSet estimates S&P 500 earnings growth of about 24% in 2026 and 17% in 2027. If those projections hold, they could provide meaningful fundamental support for stock prices over the coming years.

For those looking to start investing with a long-term horizon, building a diversified portfolio around quality stocks or a broad index fund like VOO, and resisting the urge to time the market based on any single quarter's results tends to be the more dependable path.