As the Bull Market Turns Three, More Stocks Are Needed to Keep It Going

The U.S. stock market’s current bull run hits its third anniversary this Sunday a milestone that history suggests could require broader participation from more sectors to keep the momentum going.

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Since launching on October 12, 2022, the S&P 500 Index has surged 83%, adding roughly $28 trillion in market value. Even after Friday’s pullback — triggered by former President Donald Trump’s warning of a “massive increase” in tariffs on Chinese imports the index remains up about 13% over the past year. That’s more than double the typical gain seen in the third year of a bull market, according to CFRA Research.

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Historically, of the 13 bull markets that followed World War II, seven managed to stretch into a fourth year, averaging total gains of about 88%. The current rally has already reached that level in just three years, pushing the S&P 500’s trailing price-to-earnings ratio to 25 the highest valuation ever recorded for a bull market at this stage, said Sam Stovall, chief investment strategist at CFRA.

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As the rally matures, Wall Street finds itself debating whether U.S. stocks have climbed too high, too fast. “2026 could be a tougher year for equities,” Stovall warned, pointing to elevated valuations, uncertainty around tariffs and the economy, and the added volatility that often comes with a U.S. midterm election year. “That doesn’t mean the market is destined to collapse just that gains may need to slow and realign with fundamentals.”

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Several potential headwinds could challenge the market in the coming months. Trump’s tariff comments on Friday sparked the S&P 500’s worst single-day drop since April 10, echoing the earlier tariff-driven selloffs. Investors are also watching other looming risks: a potential government shutdown, the Federal Reserve’s path on interest rate cuts, and the upcoming third-quarter earnings season, which begins Tuesday with major banks such as JPMorgan Chase & Co. reporting results.

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“The pace of this rally means earnings season could add volatility if companies flag any concerns about slowing growth,” said Louise Goudy Willmering, a partner at Crewe Advisors, whose firm has been increasing exposure to international equities with more attractive valuations.

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One persistent issue is the concentration of gains in a handful of mega-cap technology firms. Nvidia Corp. has skyrocketed nearly 1,500% over the past three years, while Meta Platforms Inc. has climbed more than 450%. But outside of these giants, much of the market has lagged behind.

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An equal-weight version of the S&P 500 where all companies are treated equally regardless of size has underperformed the standard, market-cap-weighted index by 21 percentage points since October 2022. That’s the biggest gap since at least the 1990s, Bloomberg data show. By contrast, in the last three bull markets that made it to a third year, the equal-weight index typically outperformed by an average of 24 percentage points.

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According to Jurrien Timmer, director of global macro at Fidelity Investments, this narrow leadership is unusual. “Bull markets usually start broad, fueled by Fed rate cuts that lift most sectors,” he said. “This time, the opposite happened the Fed was raising rates to fight inflation, leaving the rally heavily concentrated.” Today, the so-called “Magnificent Seven” tech names account for roughly one-third of the S&P 500’s total weight, an all-time record.

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Still, few market veterans see an imminent bear market defined as a 20% or greater drop. Jim Paulsen, a longtime market bull and author of The Paulsen Perspectives newsletter, believes the Fed would likely intervene if conditions worsened. He expects the rally to gradually widen beyond the dominant tech names to include equal-weighted and small-cap stocks. “We’ll see some bumps along the way,” he said, “but after three years of strong gains, that’s natural. Don’t fight the Fed or the tape.”

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After back-to-back annual gains exceeding 20%, something not seen since the late 1990s, valuations are lofty and investor caution is rising. The S&P 500’s strong performance in 2023 and 2024 has prompted some market participants to trim exposure to equities and take profits. Friday’s tariff-driven selloff, many analysts say, offered just such an excuse.

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“This is a good time for investors to rebalance,” said Patrick Fruzzetti, portfolio manager at Rose Advisors. His firm has been underweight in technology and rotating into undervalued health-care names, including life sciences and diagnostic firms. “If you’ve done well in Big Tech, it makes sense to look for opportunities in sectors that will benefit once rate cuts take hold.”

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Even with valuations stretched, history remains on the side of the bulls. CFRA data show that since World War II, bull markets have lasted an average of 4.6 years, with total returns around 157%. At three years old and up 83%, this one still has theoretical room to grow particularly if leadership broadens beyond the tech-heavy corner of the market.

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“There are no clear signs that the market is in a danger zone,” Fidelity’s Timmer said. “The real risk would be if bond yields climb back toward 5%, forcing valuations to reset and possibly deflating the AI-driven enthusiasm. That’s why broadening market participation is so crucial from here.”

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As the U.S. bull market enters its fourth year, the path forward likely depends on whether the rally can evolve beyond its narrow base and whether investors can stay disciplined amid the noise. History shows bull markets can endure, but only if the enthusiasm spreads beyond just a handful of names.

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