S&P 500 bull market turns four with Truist seeing room to run

The current S&P 500 bull market passes its four-year mark early next week, with the index up 117% since its October 2022 low. Truist Advisory Services says history and business-cycle data both favor the rally continuing into a fifth year, though a pullback remains likely along the way.

The S&P 500 bull run turns four next week, and the index has climbed 117% since bottoming at 3,577 on Oct. 22, 2022. According to Keith Lerner, chief investment officer at Truist Advisory Services, the rally "still deserves the benefit of the doubt."

History favors a fifth year of gains

In a note released Thursday with investment-strategy analyst Jake Reid, Lerner points out that of the six prior bull markets that extended beyond their fourth year, all but one saw further gains in the fifth year. The average gain for bull markets since the 1950s is 184%, and these cycles tend to post their strongest performances near the beginning and end of the run.

Still, pullbacks are typical. Lerner calculates the average maximum drawdown during a bull market's fifth year at 14%, which he frames as the cost of staying invested through the longer trend.

Growth and valuations support the case

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. Lerner says avoiding a recession remains critical to the bull market's survival.

Rising earnings, not expanding valuations, have driven the fourth year of the advance. The S&P 500's forward price-to-earnings multiple has fallen from 23 a year ago to roughly 19 now, while the technology sector's multiple dropped from 32 to 22 over the same period. Lerner notes the S&P 500's primary trend remains positive, led by the tech sector and AI-related megacaps.

Risks that could end the run early

Lerner lists several threats that could cut the bull market short of its fifth birthday: further tightening from Federal Reserve interest-rate hikes and higher bond yields, geopolitical tensions, energy prices staying elevated, a high bar for earnings surprises, the market's dependence on the AI trade, and widening credit spreads tied to AI capital spending.

Even so, Lerner maintains that age alone is not a reason to turn defensive. Continued growth, resilient earnings and more reasonable valuations, he concludes, suggest the cycle still has room to run.

Source: MarketWatch.com – Top Stories

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