The S&P 500 (INDEXSP:.INX) is up 26% year to date, and most people agree that the market has had a tremendous year, but according to historical analysis from JPMorgan Chase & Co. (NYSE:JPM)’s Thomas J Lee, it’s actually been an “ordinary” rally.

Double-digit market gains

“Since 1897 about one-in-three years has seen the market rise greater than 20% (34 out of 116 instances). In fact, double-digit market gains are surprisingly common. For instance, there are 57 years when the market was up more than 10% and only 19 years up single digits,” writes Lee. “The YTD gain, taken by itself, is not a sign of exuberance, but quite typical.”

annual price performance JPM S&P 500

S&P 500: Historical precedent bodes well for the future

Lee gives further reasons to be optimistic in both the short and long-term. He notes that December is a historically strong month, and that the market is up 80% of the time when the year has been rallying up until that point. Looking towards next year, he says that the 2013 “wealth effect” should hit $8.8 trillion, which implies an additional $440 billion (5%) in consumption next year. Continuing with the historical outlook, Lee recommends focusing on quarter-to-date leaders because November momentum translates into a strong December most of the time.

Like Lee, most analysts are bullish on equities for 2014, but Lee goes further arguing that the S&P 500 (INDEXSP:.INX) is actually due for further upward re-rating because the market is trading at a discount to high-yield bonds. The conventional wisdom is that re-rating has largely played itself out, and that companies need to improve earnings to continue pushing their stock prices up. Some people even argue that the re-rating has gone too far and that we should be concerned about a valuation bubble. Even if the market tends to go up in double-digit bursts, it also gets hit with a downward correction a fair amount of the time, and many people think we’re overdue.

HY v S&P 500 1113

In light of the recent holiday, Lee says that he’s thankful for four things this year: we haven’t had a major correction so far this year, the Fed has kept its credibility intact, Washington avoided a debt ceiling disaster, and “it is now socially acceptable to be ‘bullish’.”