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Twitter The current bull market turned four years old yesterday.
The S&P 500 bottomed on October 12, 2022. Since then, the index has gained 118%.
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The fourth anniversary of the bull market has a lot of investors asking the same question. When does it end?
History says age alone doesn’t end a bull market. According to Carson Investment Research, this is now the 8th longest bull market since World War II. The average one lasted 4.5 years and gained 125%.
The longest ran much further. The 1987–2000 bull market lasted 12.3 years and gained 582%. The 2009–2020 run lasted 11 years and gained 400%.
Bull markets usually end when profits stop growing. Right now, profits are accelerating.
S&P 500 earnings are on track to grow 32.7% this year, according to FactSet. Analysts expect another 15.8% in 2027. That’s 54% earnings growth in just two years.
An earnings boom of this size is unprecedented this late in an economic cycle.
Third-quarter earnings season just kicked off.
Consensus estimates suggest 29.6% profit growth for the S&P 500. Companies usually beat estimates. And based on the historical beat rate, actual Q3 growth could top 35%. A record 72 companies issued positive guidance for the quarter — the most since FactSet began tracking it in 2006.
What’s driving it? Productivity.
U.S. labor productivity has grown 2.1% a year since late 2019. That’s faster than the 1.5% pace from 2007 to 2019. Companies are producing more with the same workforce, and more of every sales dollar is reaching the bottom line.
S&P 500 profit margins are tracking at 15% this quarter, up from 13% a year ago. Last quarter set a record at 17%.
Here’s the part that surprises people. Stocks have gotten cheaper as the market climbed.
Since June 30, the S&P 500 is up 3.5% while forward earnings estimates jumped 10.4%. The forward P/E has dropped to 19.1 — right in line with its 10-year average.
That’s a reasonable price for this much growth. Wall Street’s bottom-up target for the S&P 500 is 9,290, about 20% higher.
So, when will this bull market end? I don’t see it happening anytime soon. Earnings are growing, margins are expanding, and valuations are reasonable.
My advice: stay long and let the good times roll.
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Ian Wyatt
Editor, Daily Profit