Bull Market Turns Three, More Stocks Have to Join to Keep it Going

The bull market in US stocks is having its third anniversary on Sunday, but if history is any guide it needs to broaden out soon to keep running.

The S&P 500 Index began its current bull run on Oct. 12, 2022, soaring 83% in that time and adding about $28 trillion in market value. While the gain was 88% before Friday’s selloff on President Donald Trump’s threat of a “massive increase” in tariffs on goods from China, the benchmark’s 13% jump over the past 12 months is still twice the average rise in the third year of a bull market, according to CFRA Research.

Of the 13 prior bull markets since World War II, seven completed a fourth year, with an average total gain of 88%. This one has essentially done that in three years, putting the S&P 500’s trailing price-to-earnings ratio at 25 — the highest ever for a bull market in its third year, said Wall Street veteran and CFRA chief investment strategist Sam Stovall.

“I’ve never seen anything like this,” Stovall said.

From here, the tug-of-war between the believers and skeptics faces a fierce debate: Have US stocks rallied too far, too fast?

“It may be a tough 2026 for US stocks because of pricey multiples, tariff and economic concerns, and since next year is a midterm US election year, which usually adds to volatility over policy uncertainty,” Stovall said. “But history says the market isn’t too far over its skis yet and doomed to fail. It just means gains need to rightsize soon.”

Some Wall Street pros worry about wild cards on the horizon. Investors saw what that could look like on Friday when Trump’s tariff comments sent the S&P 500 tumbling to its worst day since April 10 during the first tariff freak out. In addition, there’s the US government shutdown, the path of the Federal Reserve’s interest-rate cuts, and the third-quarter earnings season, which begins Tuesday with big banks like JPMorgan Chase & Co. reporting results.

“Given how quickly the market has advanced, this earnings season may stoke volatility if companies signal any growth worries,” said Louise Goudy Willmering, a partner at Crewe Advisors, whose wealth management firm is adding international shares with cheaper multiples.

One key risk is the concentration of this rally. It has been driven by tech behemoths like Nvidia Corp., which has soared almost 1,500% in the past three years, and Meta Platforms Inc., which has gained more than 450%. But lots of stocks are lagging.

Take an equal-weight version of the S&P 500, which makes no distinction between the size of the companies in the index. It has trailed the version that is weighted by market value by 21 percentage points since October 2022. That’s the widest underperformance from the start of a bull market since at least the 1990s, data compiled by Bloomberg show. In the three prior bull runs since then that made it to a third year, the equal-weight S&P has outpaced the main benchmark by an average of 24 percentage points by the 36th month.

This is unusual because bull markets typically start with broader participation in the first few years as the Fed cuts interest rates to support the economy, said Jurrien Timmer, director of global macro at Fidelity Investments. But the opposite happened this time, with the central bank hiking rates in 2022 to tame inflation. That resulted in narrow concentration, he said, with the so-called Magnificent Seven tech giants now holding a record third of the weighting in the S&P 500.

However, few professional investors are predicting a bear market, meaning a sustained decline of 20% or more, because the Fed is likely to step in if things get ugly, according to Jim Paulsen, a well-known stock market bull and author of the “Paulsen Perspectives” newsletter. He’s betting participation will broaden out to equal-weight shares and small-cap stocks “with a few bumps along the way after three years of outsized gains.”

“Don’t fight the Fed or the tape,” Paulsen said.

The risks to investors at this point in the cycle are obvious. Heading into 2025, the S&P 500 delivered two consecutive years of gains over 20%, something it hasn’t done since the late 1990s. With equity valuations near historic highs, some investors are wondering if they should trim their equities exposure. In many ways, that was what drove Friday’s selloff after Trump’s tariff threat — an excuse to cash in profits and unload some bloated positions.

“Now is the time to rebalance portfolios,” said Patrick Fruzzetti, portfolio manager at Rose Advisors. He’s underweight the tech sector and is buying beaten down health-care stocks, including life sciences companies and diagnostic firms with low valuations.

“If you benefited from hefty gains in Big Tech the past few years, looking at other sectors that benefit from rate cuts makes sense now,” Fruzzetti added.

That being said, stock market optimists have history on their side. Since World War II, bull markets have lasted an average of 4.6 years, with the S&P 500 returning a total of roughly 157%, according to CFRA. So with the current run just turning three and returning 83%, there theoretically should be plenty of room for stocks to keep advancing and for the gains to broaden out beyond the tech giants that have driven the action so far.

“The are no signs that this stock market has reached a danger zone,” Fidelity’s Timmer said. “The bigger risk is if yields rise toward 5% and valuations are forced to reset, risking a major selloff if the AI boom turns into a bubble. So broadening breadth is crucial from here.”