Has the Bull Market in U.S. Stocks Ended After a 131% Rise Over Four Years?

The S&P 500's cumulative increase of 131% over four years is impressive, yet it cannot hide the deep fractures within: 84% of its constituent stocks have retreated more than 10% from their peaks, while 42 AI-related stocks account for 67% of the gains, with the market capitalization of the three giants soaring to 22%.

Written by: Xu Chao, Wall Street Insights

The current bull market in U.S. stocks stands at a delicate crossroads. It has weathered aggressive interest rate hikes, a banking crisis, geopolitical conflicts, and turmoil in the bond market, yet remains resilient, with a cumulative increase of 131% over four years. However, beneath the shiny surface of the index, a disturbing structural crack is widening—the foundation of the bull market is increasingly supported by fewer companies.

Since hitting a low on October 12, 2022, the S&P 500 index has achieved a total return of 131%, equivalent to an annualized rate of about 23.3%, roughly three times the historical average of the market. During this period, Nvidia surged approximately 1875%, and Meta rose about 488%. However, according to data from Ned Davis Research, the current market breadth of the S&P 500 index—the proportion of rising stocks among its constituents—has fallen to a historic low, and historically, whenever market breadth diverges from index performance, the S&P 500 often peaks in the following months.

At the same time, ongoing pressure in the bond market casts a shadow over the outlook for risk assets. U.S. Treasury yields have risen to a 24-year high. The core contradiction in the market is now clear: AI profits and investments still provide growth support, but high interest rates, energy inflation risks, and an extremely concentrated market structure leave little room for error in the event of any missed expectations.

AI Wave Dominates the Bull Market, But Breadth Hits Historic Low

The primary driving force behind this bull market has always been the market's fervent bet on artificial intelligence. However, this enthusiasm is rapidly concentrating on a few companies.

According to analysis from market research firm The Kobeissi Letter, since the beginning of 2024, 42 AI-related stocks have contributed approximately 67% of the price returns of the S&P 500 index—these 42 stocks accounted for about 22 percentage points of the index's gains, while the remaining 458 constituents collectively contributed only 11 percentage points.

The issue of concentration is further deteriorating. Apple, Microsoft, and Nvidia currently account for about 22% of the total market capitalization of the S&P 500, a significant increase from about 14% at the end of 2022. Meanwhile, approximately 84% of the constituents in the current S&P 500 have declined more than 10% from their respective historical peaks, placing them in a technically defined correction zone—this data is particularly striking as the index itself remains at historical highs.

Mark Hackett, Chief Market Strategist at Nationwide, summarizes this situation as the "core tension of the market": profits and AI investments are still strong supports for growth stocks, but high long-term interest rates, energy-driven inflation risks, and extremely narrow market breadth have left the market with almost no margin for error.

The 'Age' of the Bull Market Is Not the Source of Risk

As the bull market enters its fifth year, some investors are beginning to worry whether it has become "aged." However, historical data does not support this assertion.

According to statistics from Ned Davis Research, among the 38 bull markets since 1900, 33 have lasted shorter than the current one. The average duration of all bull markets is 25 months, with a median of 22 months. At first glance, this data may seem alarming, but MarketWatch columnist Mark Hulbert cites research indicating that using "age" to predict the end of a bull market is a statistical fallacy—just as one cannot conclude that daylight causes night simply because night follows day.

What truly ends a bull market are economic recessions (13 out of 22 bear markets since 1950 were accompanied by recessions), excessive investor exuberance (such as during the dot-com bubble), or external shocks (such as wars and pandemics). CNBC host Jim Cramer corroborates this from an investor's perspective: "We can never predict which drop will be the real big one, nor can we predict the timing of a rebound. Over the past four years, we have had countless opportunities to exit, but each time we would have incurred losses."

A 131% Increase Is Not Uncommon in History

Is the increase of this bull market already too high? Historical data provides a relatively optimistic answer.

According to MarketWatch, Edward McQuarrie, a retired professor at Santa Clara University, and William Bernstein, founder of EfficientFrontier.com, have analyzed the rolling four-year total returns of the U.S. stock market since the late 18th century and found that the current cumulative increase of 131% does not constitute a historical anomaly—"This happens frequently... it’s nothing, far from being at an extreme historical level," they wrote.

Even extending the view to the low point of the global financial crisis in March 2009, with a statistical cycle of 17.5 years, the performance of the U.S. stock market has historically seen many instances of significantly exceeding current levels. This means that judging the end of a bull market solely based on the increase itself lacks strong historical basis.

Interest Rates and Market Breadth: The Most Critical Variables in the Short Term

The real risk in the current market may not lie in the age and increase of the bull market, but in whether interest rate pressures can ease and whether market breadth can be restored.

Morgan Stanley Chief Investment Officer Mike Wilson previously pointed out that the deterioration of market breadth is closely related to the Federal Reserve's hawkish stance—after the Fed's hawkish position strengthened, interest rate expectations rose, and bond market volatility subsequently pushed U.S. Treasury yields to a 24-year high, further suppressing the overall outlook for equity assets. He wrote: "If bond volatility can calm down more quickly, market breadth is likely to catch up with index prices, driving both higher in the near term."

HSBC's multi-asset strategy team holds a similar view. According to an HSBC report, if U.S. economic data shows sustained signs of underperformance, it could drag the entire U.S. Treasury yield curve down, thereby supporting valuations across various assets and facilitating the diffusion and rebalancing of internal driving forces in the stock market.

HSBC strategist Max Kettner's team believes that after entering 2027, if the "golden girl" scenario is realized—steady growth, falling inflation, and declining interest rates—technology stocks and U.S. stock profits may return to strength, but the ensuing rise may still be a structurally concentrated market.

AI Bubble Debate: Disagreements Persist, Short-Term Support Remains

Another core debate in the market is whether investments in artificial intelligence have entered a bubble phase.

HSBC's strategy team holds a clear rebuttal position on this. Their report points out that the current skepticism about AI is overly long-term—using income forecasts with high uncertainty two to three years out to negate current price trends is illogical.

More importantly, recent signals indicate that the pace of downward revisions in free cash flow (FCF) for hyperscale cloud computing companies has begun to slow, with expectations for FCF improvement by 2027 forming; semiconductor and memory companies have recently regained leadership; and the price of computing power has stopped falling and is rising, exhibiting characteristics of the "Jevons Paradox"—where efficiency improvements lead to larger demand expansions, potentially providing positive catalysts for the entire technology sector.

The earnings front also provides support. According to FactSet data, a record number of S&P 500 companies have issued positive earnings guidance for the third quarter. Samsung Electronics previously forecast that its operating profit for the third quarter could reach $80 billion, which, if realized, would set a record for the highest quarterly profit in the history of technology companies.

This partly explains why, in an environment of war, high interest rates, and economic uncertainty, the index can still maintain historical highs—capital is flowing to where real profits are being made.