The S&P 500, widely regarded as the most reliable gauge of overall U.S. stock market performance, has entered the third year of its current bull market run, a milestone not seen since 2011. According to reports from The Motley Fool, this achievement, coupled with the index’s best January-through-September performance since 1997, suggests that the ongoing rally may have further room to run based on historical patterns.
Historical Bull Market Comparisons
The current bull market, which began in October 2022, has shown impressive gains of approximately 63% for the S&P 500. Historically, bull markets have averaged returns of 152%, suggesting potential for further growth. The duration of bull markets has varied significantly, with some lasting over a decade, like the 12-year run starting in 1987 and the 11-year stretch beginning in 20092. On average, post-World War II bull markets have lasted about 4.5 years.
- The current bull market is still relatively young at two years old
- Seven out of 13 bull markets since World War II have lasted three years or more
- Longer bull markets tend to generate higher returns, with the 1987 and 2009 bulls yielding 582% and 400% respectively
- The S&P 500’s average annual return since 1957 has been about 10.5%, providing context for long-term performance
Impact of Interest Rate Cuts
The Federal Reserve’s recent interest rate cuts have had a significant impact on the S&P 500’s performance. Historically, the index has shown mixed reactions to rate cuts, with performance varying based on economic conditions. According to a Bank of America analysis, the S&P 500 has returned an average of 11% in the 12 months following the first rate cut of an easing cycle since 1974, slightly below its long-term average since the 1970s of 12% per year.
- When rate cuts coincide with soft landings rather than recessions, the S&P 500’s average 12-month return jumps to nearly 21%
- Low interest rates typically boost stock prices by making stocks more attractive compared to bonds and reducing borrowing costs for companies
- However, rate cuts can also signal economic concerns, which may lead to market volatility
- The current market environment, characterized by AI-driven growth and easing inflation, has created optimism among investors despite initial rate cut jitters
AI Boom Driving Market Gains
The artificial intelligence (AI) boom has been a major driver of recent stock market gains, particularly benefiting tech companies like Nvidia. The S&P 500 has seen significant growth, with analysts predicting it could reach 6,000 by year-end amid the AI surge and strong corporate earnings. Nvidia’s market value surpassed $3 trillion in 2024, fueled by the generative AI boom and rebounding tech sector.
Key points:
- AI-related stocks have propelled the S&P 500 and Nasdaq to record highs
- The overall AI semiconductor market is projected to reach $168 billion by year-end
- Tech and AI companies are expected to exceed expectations for the September quarter
- However, high valuations and market concentration in a few large tech stocks pose potential risks
- Analysts suggest diversifying exposure to smaller tech companies and other sectors that may benefit from AI advancements
Source: Perplexity
