Investors hoping for a quiet summer have instead been reminded that markets and geopolitics rarely take a vacation. The Middle East conflict has re-escalated, semiconductor stocks have wobbled, and high-profile listings have slipped below their IPO prices. Against this backdrop, a question we increasingly hear is whether the US equity bull market is finally running out of steam. Interestingly, when each concern is examined, most investors acknowledge that none is likely, on its own or collectively, to trigger a bear market. The question then becomes more subtle: if no major shock is imminent, can a bull market simply die of old age?
History suggests the answer is no. Bull markets do not end because they have lasted a long time; they end when the forces supporting them begin to fade. Today, those forces still appear largely intact. First, we do not expect a recession this year or next. Since World War II, the S&P 500 has delivered a positive 12-month forward return nearly 90% of the time in non-recessionary environments (see Chart). While economic growth has moderated, it is neither overheating nor contracting. A slower but stable economy remains a supportive backdrop for equities. Second, inflation expectations are reasonably anchored. The recent energy shock has had only a limited effect on core goods, most service categories, and wage growth — and notably, the market has grown less reactive to each successive flare-up. With price pressures contained, the risk of a repeat of the aggressive 2022 rate-hiking cycle appears low.
Finally, earnings continue to provide a solid foundation. Historically, when corporate earnings are growing, the probability of positive equity returns over the following year has been exceptionally high. While the Q2 reporting season is still in its early innings, the results so far are encouraging: of those that have reported, 87% have beaten EPS expectations, by an average of 13%. Perhaps more encouragingly, the story is not confined to technology, with 9 of the 11 sectors posting double-digit earnings growth. Morgan Stanley’s latest corporate survey points to an uptick in both AI adoption and AI-driven productivity gains across industries. Skeptics may argue this is still insufficient to justify the scale of AI-related CapEx, but the green shoots of broadening productivity are difficult to ignore.
As such, we do not believe the bull market will die of old age. Growth is slowing but not collapsing, inflation appears contained, and earnings continue to advance — hardly the conditions under which bull markets typically end. That said, volatility is here to stay, and the greater risk for investors is often reacting emotionally to short-term turbulence. Timing both an exit (right at the peak) and a re-entry (right at the bottom) is extraordinarily difficult, and corrections are frequently followed by powerful rebounds. For those uneasy about the ride, the more constructive response is not to step aside but to dial down risk by a notch: trimming equities in favor of high-quality bonds, gold, or uncorrelated strategies such as hedge funds, rather than exiting the market altogether. More often than not, staying invested and disciplined through the noise proves the wiser course.
Frequency of One-Year S&P 500 Total Return Outside of Recession Since World War II
Source: Goldman Sachs, Bloomberg
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Tax services provided are separate from the Securities or Advisory services offered through Leo Wealth Americas. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.
The Standard & Poor’s 500 Total Return Index (SPTR) is an unmanaged group of securities considered to be representative of the stock market that tracks capital appreciation as well as distributions. It is a market value weighted index with each stock’s weight in the index proportionate to its market value. The Total Return index assumes that all cash distributions (dividends and/or interest) are reinvested.
