This Old Bull Still Has Legs

The article argues the cyclical bull market is 45 months old, well beyond the 30-month median, but still supported by earnings rather than multiple expansion. It cites 2027 EPS estimates up 25% and notes that 26% of stocks excluding mega caps still trade below 15x earnings, suggesting valuations are not broadly stretched. Breadth is thinning as the S&P 500 has outperformed equal-weight RSP, but the author remains constructive on the cap-weighted index.

Analysis

The market’s key message is not that “everything is expensive,” but that duration risk is still being paid for with earnings rather than hope. That matters because earnings-led bull markets tend to survive longer than multiple-led ones: when profits are the primary driver, drawdowns usually need a growth break, not just valuation compression, to become lasting top-outs. In other words, the burden of proof has shifted to macro/earnings deterioration, which is a much higher bar than a simple breadth scare.

The second-order implication is that the apparent narrowness is not automatically bearish if the leaders are still converting scale into incremental margin. Mega-cap earnings strength has created a self-funding loop: stronger cash flow supports capex, AI/cloud/compute investment, and continued share repurchase capacity, which keeps index-level EPS estimates rising even if the median stock is stagnant. That creates a structural winners/losers split—capital-hungry laggards with weak pricing power are effectively being starved, while the few large platforms keep compounding.

The more actionable risk is not a crash from “old age,” but a regime shift where rates or margins inflect enough to break the earnings engine. If 2027 EPS revisions stop rising, the market loses its main defense against already-full valuations; that would likely hit the equal-weight index and cyclicals first, while quality growth could still outperform on a relative basis. Conversely, if breadth starts improving without a multiple reset, the move can broaden rather than unwind—so a breadth repair is actually a late-cycle bullish signal, not a reason to de-risk mechanically.

The contrarian miss is that “cap-weighted is overconcentrated” may still be the wrong trade until the market proves the leaders are exhausted. Equal-weight looks cheaper, but cheaper can stay cheaper if earnings revisions remain negative; meanwhile, the index heavyweights are effectively carrying the entire earnings revision cycle. The trade is less about buying mean reversion and more about owning the names with the highest visibility of forward revisions and free-cash-flow durability.

Key Decisions for Investors

• Stay long SPY / QQQ versus a full rotation into RSP for the next 1-3 months; the risk/reward still favors earnings durability over breadth mean reversion unless forward EPS revisions roll over.
• Use a relative-value pair: long QQQ, short RSP into any breadth-strength rally; target 5-8% spread capture over 2-4 months if leadership remains concentrated, with a stop if equal-weight outperforms for 3 consecutive weeks.
• Buy 3-6 month call spreads on mega-cap quality compounders with strong buyback capacity rather than outright index beta; the setup favors names that can self-fund capex and still repurchase stock if multiples compress.
• If 2027 consensus EPS revisions flatten for two consecutive earnings seasons, rotate defensively into higher-quality cash generators and add index hedges; that is the point where the earnings-led bull thesis becomes fragile.
• For uncertain allocators, initiate a partial RSP position as a hedge rather than a core overweight, sized at 25-35% of the equity book; it is more useful as a breadth dislocation hedge than as a standalone alpha engine.