US Bull Market Nears Four-Year Milestone As S&P 500 Rallies 117%, But Narrow Gains Raise Investor Concerns

The ongoing bullish phase in the U.S. equity market is nearing its fourth anniversary. It has been sustained by robust corporate earnings reports, low market volatility and positive sentiment towards artificial intelligence (AI). Despite that, since the rally is heavily reliant on a small subset of big tech stocks, it is making people wonder how much longer it can ‍‍‍last.

The S&P 500 has advanced 117% since the rally began on 12 October 2022. While the index is close to record levels, many individual stocks have not kept pace with the benchmark.

Why Is The S&P 500 Rally Raising Concerns?

The equal-weighted S&P 500, which gives every constituent the same influence, has underperformed the market-cap-weighted index by 52 percentage points since October 2022. According to data cited in the report, this is the widest gap at the same stage of a bull market since at least the 1990s.

The rally has added nearly US$40 trillion to the S&P 500’s market value, with AI driving much of the advance. Nvidia, a major beneficiary of the AI boom, has risen more than 1,900% since the market bottomed in late 2022.

Nevertheless, investors remain uncertain about whether companies can generate adequate returns on the billions of dollars invested in AI infrastructure. Any shift in investor sentiment over these concerns could trigger heightened volatility in the stock market. ‍‍‍

Can Corporate Earnings Sustain The Bull Market?

S&P 500 companies have recorded seven consecutive quarters of double-digit profit growth. The next test will come from the third-quarter earnings season, beginning with results from major banks, including JPMorgan Chase.

The US economy has also supported investor confidence. The Atlanta Fed’s GDPNow model estimates that real gross domestic product grew at an annualised rate of 3.7% in the third quarter, compared with 2.2% in the second quarter.

What Risks Could Disrupt The US Stock Market?

Higher bond yields remain a concern. The 10-year US Treasury yield rose as high as 5.34% in the previous week, its highest level since 2002, putting pressure on small-cap companies, banks, unprofitable technology firms and businesses with weak balance sheets.

Uncertainty over the Federal Reserve’s interest-rate path and the US midterm elections in November could also add volatility. The market’s ability to sustain its advance will depend on corporate earnings continuing to meet investor expectations and gains spreading beyond a narrow group of technology leaders.

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