S&P 500 Bull Market Marks Four Years With 118% Surge
The S&P 500 bull market marks its fourth anniversary with a 118% gain, driven by corporate earnings and tech investments. While historical data suggests further growth, analysts warn of risks from rising bond yields and high valuations.
The current bull market in the leading US stock index, the S&P 500, marks its fourth anniversary, trading 118% higher than its October 12, 2022 bear market closing low. According to Barron's, the total market capitalization of the index has surged by roughly $40 trillion.
The trend has been primarily driven by robust corporate earnings growth and massive investments in technology infrastructure. Notably, chip giant Nvidia's valuation skyrocketed from $286 billion in October 2022 to approximately $5.8 trillion today.
Historical Precedents and Future Outlook
This anniversary naturally raises concerns that the bull market is beginning to show signs of age, as they do not last forever. However, history provides an encouraging picture regarding the fifth year of a bull market. Since 1957, all six S&P 500 bull markets that celebrated their fourth birthday enjoyed another bullish period.
Keith Lerner, chief market strategist at Truist Advisory Services, points out that the average gain in bull markets since the 1950s stands at 184% over four years, with these markets tending to post their strongest performances at the beginning and end of the cycle.
"If history alone were the key to financial success, librarians would be the richest people in the world," Warren Buffett famously noted.
Valuations and Potential Risks
The current P/E ratio of 26.5 is higher than the S&P 500's ten-year average of 23.6, according to FactSet data. However, when examining projected earnings for the next 12 months, the index trades at a multiple close to the last decade's average.
MarketWatch estimates that current valuations support the likelihood of the bull market continuing. In the fourth year of the rally, S&P 500 gains stemmed from corporate earnings growth rather than multiple expansion—the index's forward P/E actually fell from about 23 a year ago to roughly 19 today.
Potential headwinds that could dampen the rally this year include trends in long-term government bond yields, which significantly impact stock returns over time. Additional risks cited by analysts include potential tightening of financial conditions, geopolitical tensions, high energy prices, excessive expectations for corporate earnings, and heavy reliance on technology stocks and AI investments.
