It was a bumpy ride, and by April it seemed to be over. But the S&P 500 bull market weathered the severe downturn triggered by President Trump's tariffs and countless other setbacks.
Consider how far the bull market has come since its unheralded birth just over three years ago during the Biden administration. The S&P 500 was down more than 25 percent at the time due to soaring inflation during the pandemic and rising interest rates. But on October 12, 2022, a turning point occurred in the US stock market.
From that date to October 8 of this year, the S&P 500 stock index rose nearly 88 percent. Including dividends, investments in low-cost S&P 500 index funds returned more than 97 percent, according to FactSet, a financial data company. That means investors in low-cost, market-focused index funds have nearly doubled their money since the start of the bull market.
But when the bull market was born, almost no one noticed. “There's a saying on Wall Street that there's always a bull market somewhere,” CNN said on October 31, 2022, but added that wherever the bull may have gone, it certainly wasn't in the United States. “The broader market is undeniably struggling this year,” CNN said.
I missed that boat too. On October 21, 2022, I wrote a column titled “Investing in the Shadow of a Recession” with this summary: “Recessions come in many varieties. Each would involve pain, but if history serves as a guide, stocks and bonds will likely rise at some point.”
I focused on a possible recession – which didn't happen – and missed the fact that a bull market had already begun. Obviously I didn't know where the economy or the market would go. But at least I knew I didn't know. Since stocks tend to rise over many decades, I was convinced then and now that it makes sense to invest in stocks for the long term, regardless.
Define terms
Over the past three years, it has been a solid strategy to weather downturns – even as President Trump's “Liberation Day” tariff announcement on April 2 triggered a market crash.
The bull market almost collapsed back then. Midway through the trading day on April 7, the S&P 500 was more than 20 percent below its most recent peak. If it had closed at that level, the bull market would have ended and a bear market would have begun, according to Howard Silverblatt, a senior index analyst for S&P Dow Jones Indices. However, later in the day the market recovered from this catastrophic level. The bull market was barely a hair's breadth away.
Where is the market heading now? Of course nobody knows that. And this fundamental inability to know the future creates a strange problem. From a technical perspective, while we know that the bull market started more than three years ago, we do not know whether we are now in a bull or bear market.
How is that? It has to do with the way bull and bear markets are usually defined – whether the market has already risen or fallen at least 20 percent. The terminology is often misused as a prescription for the future, as if simply declaring that we are in a bull market means that stocks must continue to rise. This is magical thinking. The reality is much more prosaic.
Since the S&P 500 peaked before October 12th this year, we essentially can't know whether the bull market is three years old until the market rises above that level again.
Keith Lerner, chief investment officer at Truist Advisory, a division of commercial bank Truist, explained it this way in a telephone conversation. “We believe the bull market is here to stay and that it deserves the benefit of the doubt,” he said. “But technically we won’t know it will continue until it passes its most recent peak,” which coincidentally happened on October 8, a few days before the bull reached its third birthday.
“Say a year from now we know in hindsight that the market has fallen 20 percent from that point,” he said. “Well, the bull market would have 'officially' ended at its most recent peak.” A bear market would have started on October 8, 2025. The bull market would have ended before October 3rd.
Above or below?
Still, Mr. Lerner identified four main factors that suggest the bull is probably – but not certainly – still alive.
The first is history. He noted that since 1957, seven previous bull markets have lasted at least three years. Having made it this far, they all went one step further. Each of them gained ground the following year, with an average increase of 13 percent.
Second is the economy. “Recessions are bull market killers,” Mr. Lerner wrote in an analysis for clients. Currently, economists agree that while the labor market is weakening and tariffs are likely to slow growth, a recession is not imminent. Inflation is a concern and tariffs could still trigger a new price spiral, but the Federal Reserve has begun cutting interest rates. But as long as there is no recession, the bull market could continue.
Third, there is a section that Mr. Lerner calls “Fundamentals.” In his view, these include corporate profits, which remain strong; stock price valuations that are stretched; and market concentration, which is extreme. A separate study by Adam Turnquist, chief technical strategist at asset management firm LPL Financial, found that “stocks of Nvidia, Alphabet, Apple, Broadcom and Tesla combined accounted for 60 percent of the S&P 500's total return from July 1 through October 14.”
This set of fundamentals seems ambiguous to me, but Mr. Lerner emphasizes that earnings are “the north star” of this bull market. Despite tariffs, public companies make handsome profits. The S&P 500 “is likely to post third-quarter earnings growth of over 13 percent, which would mark the fourth straight quarter of double-digit growth,” John Butters, a senior earnings analyst at FactSet, wrote in a separate report.
Finally, Mr. Lerner cited what he called market signals, including price trends, stock performance during particular months and seasons, and the like. This mysterious area is not in my comfort zone. As a long-term investor, I don't have a clear opinion here. In our conversation, Mr. Lerner said that while the stock market has faltered recently and tariffs remain a major concern, many global stock markets are on an upward trend and investor sentiment has not yet reached extreme levels of exuberance.
Overall, Mr. Lerner sees the various market factors as positive. “I would be cautious about taking big risks,” he said. “But we believe the U.S. stock market will still rise.”
I would simply say that if a market has been rising for several years, market participants expect it to continue to do so. This tends to drive prices up for a while.
However, at some point the music will stop. There are many issues to point out now. There is widespread optimism about the future of artificial intelligence and its supposed ability to spur growth in both the economy and the stock market. In fact, there is so much optimism that it seems increasingly likely that some technology stocks – as well as investment vehicles that hold cryptocurrencies – have entered a bubble.
Additionally, President Trump's tariff policies could easily trigger further downturns. It has been causing concern and uncertainty among investors, geopolitical strategists and companies for months. Currently, the Budget Lab at Yale estimates that the effective U.S. tariff rate is over 17 percent, the highest since the 1930s.
Tariffs have again become an acute problem in recent weeks as the trade war between the United States and China escalates. On Oct. 10, tariff threats triggered the biggest one-day drop in U.S. stocks since April.
But depending on your perspective, the tariffs may be less worrisome than some of the recent domestic news. Mr. Trump has ordered the National Guard into major cities. The US government has been paralyzed since October 1st due to a vituperative dispute. Democrats in Congress have rejected cuts to Medicaid and Affordable Care Act subsidies imposed by Republicans in Congress and the Trump administration.
Deportations continue and reduce the number of workers. Free speech and research funding have been restricted at U.S. universities, and the Trump administration has threatened the Fed's independence.
No wonder the market fell just before the bull market's birthday.
Still, I would say that the bull market will continue until proven otherwise. It's had a great run by any measure and after everything it's endured, it deserves respect. The US stock market is a powerful and defiant beast.