History shows bull markets that get past their fourth year rarely throw in the towel, according to Truist
Like Robert DeNiro's character in Raging Bull, the market has plenty of stamina left.
The current equity bull market will be four years old early next week. Since bottoming on October 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 its age, with the 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 with colleague Jake Reid, 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 year five.
Indeed, the average gains for bull markets since the 1950s is 184%, according to Lerner, and it's important to note that they tend to see their strongest performance near the beginning an end of the cycle.
Investors should also remember that pullbacks are typical, with the average maximum drawdown during year five 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.
Source: Truist Advisory Services
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 also 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 "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. Over the same period the technology sector's P/E multiple has dropped from 32 to 22, a completely different trajectory to that seen during the dot-com bubble.
Source: Truist Advisory Services
Technical and seasonal tailwinds also continue to support the bull market. "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 a broader participation in the rally would strengthen the bull market further "as markets are generally healthier when a wider group of stock advances."
Lerner also lists the risks that may cause the bull to expire before its fifth birthday. Those include: 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-index futures (ES00) (YM00) (NQ00) are higher as Treasury yields BX:TMUBMUSD10Y nudge up. The dollar index DXY is a tad lower, as oil futures (CL.1) slip and gold futures (GC00) trade around $4,214 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 7765.36 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 4210.1 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 the company has cut its iPhone 18 Pro component orders due to soft 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.
Kansas City Federal Reserve President Jeffrey Schmid speaks at Kansas City Economic Outlook event at 9:30 a.m. Eastern.
U.S. economic data 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 the chart that shows what happened to the S&P 500 Technology Sector and the S&P 500 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 leads to less capex, which will cause an unwind of long AI positions that will then move into laggards, they reckon.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker 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