Aging bull: Why this 4-year-old stock-market rally still packs a punch

By Jamie Chisholm

History shows bull markets that get past a fourth year rarely throw in the towel, according to Truist

Like Robert DeNiro's character in "Raging Bull," the market has plenty of fight left in it.

The current equity bull market will pass its four-year mark early next week. Since bottoming on Oct. 22 in 2022 at 3,577, the S&P 500 is up 117%.

Inevitably, such an anniversary will have some worrying that the bull is showing signs of age, with chances of its demise increasing as it trundles on. But history suggests that the stock-market rally "still deserves the benefit of the doubt," according to Keith Lerner, chief investment officer at Truist Advisory Services.

In a note released Thursday, penned along with colleague Jake Reid, an investment-strategy analyst, Lerner observes that of the six prior bull markets that extended beyond their fourth year, all but one saw further gains in the fifth year.

Indeed, the average gain for bull markets since the 1950s is 184%, according to Lerner, and it's important to note that they tend to see their strongest performances near the beginnings and ends of the cycles.

Investors should also remember that pullbacks are typical, with the average maximum drawdown during Year 5 of 14%, Lerner calculates. "Pullbacks are the admission price for participating in longer-term market appreciation. This underscores the importance of staying aligned with the primary trend rather than short-term turbulence," he says.

Lerner accepts, however, that historical context is useful but not sufficient on its own. And he quotes Warren Buffett, who once said: "If past history was all that is needed to play the game of money, the richest people would be librarians."

So Truist looks beyond historical precedent to analyze how the market is likely to be affected from here by business-cycle dynamics, fundamental corporate indicators and market signals.

Regarding the former, Lerner says that "avoiding a recession remains critical to the bull market." The good news is that Truist's economists expect U.S. economic growth of 2.2% in 2026 and 2% in 2027, "supported by resilient consumers and continued AI and technology investment."

Valuations are supportive of an extended bull run, too. During the fourth year of the rally it's been rising earnings rather than expanding valuations that have powered the S&P 500's advance, with the benchmark's forward price-to-earnings multiple falling from 23 a year ago to the current roughly 19. The technology sector's P/E multiple has over the same period dropped from 32 to 22, a completely different trajectory from that seen during the dot-com bubble.

Technical and seasonal tailwinds also continue to supply the bull market strength. "The S&P 500's primary trend remains positive, led by the tech sector and AI-related megacaps," says Lerner. "While healthy bull markets often reset through rotation rather than broad liquidation, as we've seen on several occasions in recent years, we see tech leadership as likely to endure."

That said, Lerner believes broader participation in the rally would strengthen the bull market further as equity markets "are generally healthier" when a wider group of stocks is advancing.

Lerner also lists the risks that may cause the bull to expire before its fifth birthday: further tightening in financial conditions caused by Federal Reserve interest-rate hikes and higher bond yields; geopolitical tensions and energy prices staying higher for longer; the currently high bar for earnings surprises that may lead to disappointment; the market's overdependence on tech, particularly the artificial-intelligence trade; and a widening of credit spreads as investors fret about soaring AI capital expenditure.

Still, Lerner emphasizes that, as the bull market completes its fourth year, "age alone is not a reason to become defensive."

"Continued economic growth, resilient earnings, more reasonable valuations, and generally favorable seasonal trends and historical precedent suggest the cycle still has further room to run," he concludes.

The markets

U.S. stock-indices SPX DJIA COMP are higher at the opening bell as Treasury yields BX:TMUBMUSD10Y are steady. The dollar index DXY is little changed, as oil futures (CL.1) slip and gold futures (GC00) trade around $4,207 an ounce.

 
Key asset performance                                                Last       5d      1m       YTD     1y 
S&P 500                                                              7,765.36   1.29%   2.29%    13.44%  15.30% 
Nasdaq Composite                                                     27,193.34  1.20%   4.26%    17.00%  18.11% 
10-year Treasury                                                     5.252      -3.10   27.80    108.00  121.60 
Gold                                                                 4,210.1    0.05%   -3.40%   -2.82%  5.49% 
Oil                                                                  90.52      -2.57%  -12.90%  57.67%  47.14% 
Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Apple shares (AAPL) are lower after a report indicating that the company has cut its iPhone 18 Pro component orders due to softened demand.

SoftBank (JP:9984) is reportedly seeking $100 billion from Middle East investors to expand its bet on AI.

Shares of AT&T (T), T-Mobile (TMUS) and Verizon Communications (VZ) are falling after SpaceX (SPCX) announced the acquisition of spectrum licenses that would allow Starlink Mobile to become a major carrier in the U.S.

Humana's stock (HUM) jumped after the company improved its performance on crucial Medicare Advantage quality ratings that's expected to boost revenue.

Delta Air Lines shares (DAL) are falling after the company presented earnings and cut its annual profit forecast.

U.S. economic data to be released on Friday include the University of Michigan Preliminary Consumer Survey for October, published at 10 a.m.

U.S. bond markets will be shut on Monday for Columbus Day, but the stock market will be open.

For Walmart, replacing humans with robots is a multibillion-dollar struggle.

The chart

There was a noticeable switch in stock-market action on Thursday, when many AI-associated shares fell but recently struggling equities, notably the banks, rallied. Bluekurtic Market Insights spotted the catalyst for this pivot. In a post on X, the analytics group presented a chart that shows what happened to the S&P 500's technology sector and its financial sector after the Financial Times published a story that OpenAI's annualized revenue was $20 billion lower than recently thought. Weaker AI monetization expectations lead to less capital spending, which will cause an unwind of long AI positions that will then move into laggards, they reckon.

Top tickers

These were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern.

 
Ticker symbol  Security name 
NVDA           Nvidia 
SPCX           SpaceX 
TSLA           Tesla 
GME            GameStop 
MU             Micron Technology 
AMZN           Amazon 
INFY           Infosys 
AMD            Advanced Micro Devices 
AAPL           Apple 
PLTR           Palantir 

-Jamie Chisholm

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(END) Dow Jones Newswires

10-09-26 0930ET