The Wall Street Bull in the Financial District, home to the New York Stock Exchange, in Manhattan, in New York City. Photo by Spencer Platt/Getty Images files

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Clowns to the left of me
Jokers to the right
Here I am, stuck in the middle with you —Stealers Wheel

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With the current bull market now into its fourth year, investors could be forgiven for wondering when the party will end. They are trapped between the “rock” of FOMO (fear of missing out) and the “hard place” of FOL (fear of losses).

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There have been 13 bear markets in the bellwether S&P 500 index in the postwar era, which have ranged in depth from a loss of 20.6 per cent to a loss of 56.8 per cent and have lasted between 33 and 929 days. Unless you believe that bear markets have become extinct, markets will continue to suffer periodic episodes of malaise. As the saying goes, “You don’t need to know when something will happen to know that it will.”

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Mapping the present to the past

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In terms of length, the current runup in equities does not appear long in the tooth. As of the end of June, it has been 1,357 days since the end of 2022’s bear market. In contrast, the average duration of S&P 500 bull markets since the Second World War has been 1,905 days.

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With respect to returns, the present bull market appears similarly unalarming, with the S&P 500 index producing a total return of 123.2 per cent, as compared with an average return of 177.4 per cent for all previous bull markets in the postwar era. However, this average is heavily skewed by the bull run that included the late 1990s tech bubble, during which the index produced a total return of 582.1 per cent. Once this extreme data point is removed, the average bull market return falls to 140.6 per cent, making the current bull market appear considerably less contrasting.

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From a rate of appreciation perspective, the current 1,357-day bull run appears somewhat ahead of itself. The S&P 500 index has delivered a total return of 123.2 per cent, as compared with an average return of 104.8 per cent over the same period during the three previous bull markets. Only the recovery after the global financial crisis had a greater rate of ascendance, returning 125.4 per cent over its initial 1,357 days. However, when equities troughed in March 2009, the forward price-to-earnings (PE) ratio of the S&P 500 was about 11. Once investors became comfortable that the world was not collapsing, bargain basement prices and hyper-stimulative monetary policies served as rocket fuel for stock prices. In contrast, the current bull run began with a PE ratio of over 16 and current rates are not particularly accommodative.

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Perhaps the most striking feature of the U.S. market is its strength over an extended period. Annualized returns over the past 10 years through the end of 2025 are 14.68 per cent, as compared with an average of 10.97 per cent for all rolling 10-year periods in the postwar era. Reversion to the long-term mean would require a 44 per cent decline in prices or subpar returns over an extended period.

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Although U.S. companies’ earnings growth has been strong, it has been surpassed by the appreciation of stock prices. Ten years ago, the S&P 500 index was valued at approximately 18 times next year’s estimated earnings, as compared with about 22 times these days. In other words, stocks have had about a 25 per cent boost purely from multiple expansion. A reversion to the average PE multiple over the past 20 years of 17.9 would entail a 19 per cent decline in prices.

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Bull markets don’t die of old age, they get slaughtered

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Regardless of whether price gains have been excessive or whether valuations are unrealistic, these considerations don’t matter when it comes to markets over the near to medium term. Bull markets don’t die of old age. Rather, they get slaughtered.