S&P 500 Bull Turns 3: Evidence It Can Keep Going

LPL Financial projects the S&P 500 bull market, now three years old and up over 80% since October 2022, has further room to run, citing historical patterns where bull markets average five years and typically see a 12.8% rally in their fourth year. Despite nearly half of the current gains being driven by just seven stocks, LPL anticipates broader market participation, supported by resilient economic growth, forthcoming fiscal stimulus, a dovish Federal Reserve, and robust corporate earnings, especially in the technology sector, will sustain the rally.

Analysis

The S&P 500 bull market, now three years old, has delivered over 80% returns since its October 12, 2022, low of 3,577. LPL Financial's chief equity strategist, Jeffrey Buchbinder, projects continued strength, citing historical patterns where most bull markets average five years. The fourth year of a bull market historically sees a significant 12.8% rally, approximately four times higher than the typical third-year return, with six of seven such periods being positive.

Despite the strong overall performance, nearly half of the S&P 500's gains have been concentrated in just seven stocks, with Nvidia (NVDA) alone contributing 14.8% of the gain. This concentration suggests an opportunity for the remaining 493 S&P 500 constituents to broaden market participation and sustain the rally. Other significant contributors include Microsoft (MSFT) at 8.6% and Apple (AAPL) at 6.2%.

The positive outlook is further supported by a favorable economic climate, characterized by resilient growth, contained inflation, and anticipated declining interest rates. LPL points to forthcoming fiscal stimulus, a dovish Federal Reserve stance, and robust corporate earnings, particularly within the technology sector, as key drivers for continued market momentum. These macro factors are expected to provide a strong foundation for the bull market to extend into its fourth year.

Key Decisions for Investors

• Investors should assess portfolio concentration in the seven mega-cap stocks that have disproportionately driven recent S&P 500 gains, considering broader diversification.
• Monitor market breadth for increased participation from the remaining 493 S&P 500 constituents, as this would signal a more sustainable rally.
• Factor in the supportive macroeconomic environment, including resilient growth, potential fiscal stimulus, and a dovish Fed, when evaluating sector allocations and overall market exposure.
• While acknowledging historical patterns, investors should remain vigilant for shifts in economic data or monetary policy that could alter the current optimistic outlook.