The Bull Market Turns Four: Can the Rally Make It to Five?

Preface

The current bull market reached its fourth anniversary on Monday, marking a remarkable stretch for US equities. Since the S&P 500 closed at its low on Oct. 12, 2022, the index has climbed nearly 120%. A key force behind that advance has been investor enthusiasm for artificial intelligence (AI), particularly the companies supplying the chips and infrastructure needed to build out the technology. Yet a strong run also raises a difficult question: how much further can the rally go? Investors are weighing the promise of AI-driven earnings against persistent concerns about inflation, rising bond yields, and a more hawkish Federal Reserve. This article examines the forces that have sustained the bull market, the technical and economic risks facing it, and why some investors believe further gains remain possible even as the path ahead becomes more demanding.

Lazy bag

The bull market has gained nearly 120% since its closing low on Oct. 12, 2022, with AI-related stocks playing a central role. Nvidia has grown into a roughly $5.5 trillion company, while Micron Technology crossed a $1 trillion market cap for the first time this May. At the same time, the rally faces higher inflation concerns, surging bond yields, concentrated market leadership, and elevated earnings expectations. Oppenheimer's Ari Wald sees a median 13 months remaining before a cycle peak, while historical median returns in a bull market's fifth year were 21%. The outlook is therefore neither straightforwardly bearish nor assured: further gains may be possible, but participation and earnings will matter.

Main Body

The current bull market turned four on Monday, completing an unusually powerful advance in US stocks. Since the S&P 500's closing low on Oct. 12, 2022, the index has risen nearly 120%. The anniversary is a useful moment to consider both the source of that growth and the conditions that could determine whether it continues into a fifth year.

Artificial intelligence has been a defining theme of the rally. Since ChatGPT was released in late 2022, investors have sought exposure to businesses that could benefit from AI adoption. Much of the enthusiasm has centered on the companies providing the essential computing components and infrastructure—the so-called “picks and shovels” of the technology build-out. Their share prices have soared as markets have anticipated strong demand for advanced computing and related products.

Nvidia has become the most prominent example. Once best known for graphics cards used in high-end video games, the company is now valued at roughly $5.5 trillion. It first passed a $1 trillion market cap in 2023. Micron Technology has also benefited from the AI-related investment cycle and passed a $1 trillion market cap for the first time this May. These milestones illustrate how substantially investor expectations have changed around companies associated with AI infrastructure.

The market's climb has taken place amid recurring uncertainty. The S&P 500 reached above 7,800 for the first time just last week and remains near record levels. Technology stocks have had an outsized influence on the broader index: about 40% of the S&P 500 is allocated to tech stocks. That weighting has helped the index advance when large technology companies have performed well, but it also means that the market's overall progress depends heavily on a relatively narrow group of influential firms.

Investors are now asking whether the rally can continue at a similar pace. Concerns include the possibility of higher inflation, surging bond yields, and a Federal Reserve that may take a more hawkish approach. These conditions can challenge stock valuations by increasing the return investors can earn elsewhere and by raising uncertainty about future borrowing costs and corporate profits. They do not, by themselves, establish that a market peak is imminent, but they form part of the backdrop against which investors assess risk.

Historical and technical observations offer one way to frame the cycle's maturity. Oppenheimer's Ari Wald describes the current bull market as the sixth longest among 24 bull markets dating back to 1932. In reviewing the data, Wald wrote that the median time remaining before a cycle reached its peak was 13 months. That historical pattern suggests 2027 could represent the final leg of the current run, although a median is a reference point rather than a precise forecast for any particular cycle.

Wald also noted a reason not to assume that a mature bull market has exhausted its potential. The median fifth-year return was 21%, indicating that previous bull markets often continued to deliver gains during their fifth year. This figure does not guarantee a similar outcome in the current cycle, but it underscores that longevity alone does not necessarily mean an immediate reversal. The market could still rise while approaching a later peak.

Another important question is market breadth: whether advances are shared across many stocks or depend on a smaller number of large companies. Breadth has deteriorated. In September, 75% of stocks in the S&P 500 closed in negative territory, as concerns about higher interest rates encouraged investors to concentrate on a handful of mega-cap companies. When fewer stocks participate in an index's advance, the headline level can give a more optimistic impression than the experience of the broader group of companies.

Small-cap stocks have faced particular pressure. Wald is watching the Russell 2000 as it tests its 200-day moving average, a technical level investors often use to assess the direction of a market or index. The behavior of small-cap stocks may help indicate whether gains are broadening or whether investor appetite remains focused on the largest companies. Wald cautioned that relative weakness should be treated as a warning, rather than an opportunity, until stronger market conditions can be reestablished.

Earnings are another test. The third-quarter reporting season is expected to be strong, but strong results may not be enough to lift share prices if expectations have become too high. A company can report growth and still disappoint investors when its results fall short of the unusually optimistic forecasts already reflected in its valuation. This makes the gap between expectations and actual performance especially important as companies report.

Technology is central to that debate because it has driven much of the market's performance and holds a large share of the S&P 500. Deutsche Bank strategist Parag Thatte wrote that he believes the rotation into tech has become overdone, with the risk-reward profile no longer looking favorable. His view highlights the possibility that even companies associated with long-term growth themes may face near-term pressure if investors have already priced in substantial future success.

Nevertheless, optimism has not disappeared. Supporters point to the stock market's resilience over the past four years and to fundamental earnings growth connected with the AI build-out. The challenge, as the rally matures, may be distinguishing companies that can convert AI investment into sustained growth from those whose share prices have moved ahead of their business performance. In other words, picking winners could become more difficult even if the broader market continues to advance.

Adam Parker, founder of Trivariate Research, described the approach required to outperform as owning stocks that grow quickly and do not miss expectations, calling that combination his firm's continuing mantra. He also said he continues to think the US stock market will perform well. These comments reflect a constructive outlook, but one that depends on careful selection and reliable company execution rather than simply buying into the market's most popular theme.

Overall, the fourth anniversary presents a mixed picture. AI enthusiasm, strong results from prominent technology companies, and historical fifth-year gains offer reasons for continued confidence. At the same time, concentration in mega-cap stocks, weak breadth, pressure on small caps, high earnings expectations, and macroeconomic uncertainty point to a more challenging environment. The bull market may have room to run, but its next phase could require investors to pay closer attention to breadth, valuation, and the quality of earnings.

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