S&P 500 Hits a New Record - Here's What Smart Investors Should Do Next

The S&P 500 closed above 7,800 for the first time on October 7, capping a three-year gain of 78% that may shift how you think about doing better financially with your equity portfolio.

Research covering January 1926 through December 2024 shows that 12-month returns after all-time highs averaged 10.4%, above the 8.8% earned at other points. The Shiller price-to-earnings (P/E) ratio has hovered near 40, a level exceeded only during the dot-com peak.

The three-year gain of 78% places the rally among the strongest stretches in market history

The S&P 500 has gained roughly 78% over the past three years and about 14% in 2026 alone, with the October 7 close above 7,800 marking the highest level in the index's history, The Motley Fool showed. The advance persisted through headwinds, including geopolitical turmoil in the Middle East, concerns about AI spending, and periodic growth-stock selloffs that tested your conviction earlier in the year.

Investors have poured capital into AI-adjacent stocks such as Nvidia and Microsoft, pushing many to double- and triple-digit gains over the period, and the breadth of buying has sustained the rally despite sharp drawdowns in individual growth names at various points in 2026.

Returns after all-time highs averaged 10.4% versus 8.8% at other points since 1926

The market sat at an all-time high in 363 of the 1,187 months from January 1926 through December 2024, meaning record closes occurred roughly 31% of the time in Schroders' dataset, the research noted. Schroders' data showed twelve-month forward returns from those record months averaged 10.4% on an inflation-adjusted basis, compared with 8.8% for months that were not at all-time highs.

Duncan Lamont, Head of Strategic Research at Schroders, described the conclusion as "unequivocal" in writing that record highs have not signaled weaker forward performance across nearly a century of data. The 1.6-percentage-point edge compounds into a meaningful wealth gap over decades and suggests that stepping to the sideline after a new high carries a cost for your long-term returns.

Switching to cash after record closes destroyed 90% of potential wealth since 1926

A hypothetical investor who moved to cash for the month following each all-time high and returned to equities otherwise would have turned an inflation-adjusted $100 into $9,922 over the full 1926-to-2024 span, compared with $103,294 for a buy-and-hold approach, Schroders' research documented.

The switching strategy delivered 4.8% annualized versus 7.3% for holding throughout, and over a 30-year horizon the wealth gap widened to a 58% shortfall. The data reinforces that you are better served staying invested than reacting to a round number on the index.

The Shiller CAPE ratio near 40 has been exceeded only once since 1871

The Shiller CAPE ratio, which averages inflation-adjusted earnings over the prior 10 years, has hovered in the 39-to-40 range and closed 2025 slightly above 40, Nasdaq.com confirmed.

• The reading has been higher only once, during the dot-com bubble, in data going back to 1871, and surpassing 40 has occurred only twice in market history.
• Cross-decade CAPE comparisons are not strictly apples-to-apples because the index composition has shifted toward mega-cap technology companies with different margin profiles.
• AI-driven demand across energy, industrials, and materials may sustain earnings growth that supports higher multiples than prior eras allowed.

Investors who bought at yearly highs earned 12.64% versus 14.65% at lows

A Capital Group study covering a hypothetical 20-year period found that an investor who bought at the market's lowest point each year earned an average annual return of 14.65%, while one who bought at the highest point earned 12.64%, The Motley Fool reported.

The gap shows that even consistently buying at the worst moment each year still produces strong compound returns, and the result supports holding a diversified position rather than waiting for your ideal entry point.

The decade-long compound annual growth rate of 12.6% outpaces the 97-year average

The S&P 500 gained roughly 230% over the 10 years through December 2025, a compound annual growth rate of approximately 12.6% that sits above the index's 97-year average of about 10%, Nasdaq.com showed.

The elevated pace could turn a $100,000 lump-sum investment into a sum exceeding $330,000 at the decade-long rate, but the 97-year average of roughly 10% represents the more conservative baseline for projecting your future wealth.

Big tech is spending nearly $700 billion on infrastructure, raising revenue-gap worries

The Motley Fool documented that large technology companies are collectively spending nearly $700 billion on infrastructure this year, a pace that has raised investor concerns about whether near-term revenue will justify the capital commitment. Stocks tied to AI such as Nvidia and Microsoft surged in the double and triple digits during portions of the rally, but growth names also declined sharply at various points throughout 2026.

Broader headwinds include economic uncertainty and geopolitical turmoil in the Middle East, factors that add volatility to your holdings even as the underlying earnings trajectory for the index remains positive.

Bottom line

The close above 7,800 extends a 78% three-year rally, while the Shiller CAPE ratio near 40 marks the highest valuation outside the dot-com era. Schroders' century-long dataset shows that forward returns from record highs have consistently beaten returns from non-record months.

Capital Group's 20-year study reinforces that even buying at annual peaks delivers strong compound growth, and the evidence should encourage you to start investing in quality, diversified positions or hold what you own rather than chase a pullback.

This article is for informational purposes only and should not be considered investment advice.

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Author Details

Damilola Esebame, CFEI®

Damilola Esebame, CFEI®, is a financial journalist who specializes in investing and turning complex market topics into practical guidance. He grew a four-figure investment portfolio into six figures by combining long-term S&P 500 investing with carefully managed debt financing, a strategy he now writes about for readers building their own portfolios.