The Bull Market In Context

July’s rally brought the S&P 500 bull market gain to 78.6% (since its October 2022 inception)—an impressive accomplishment considering the bull began with the U.S. economy at full employment, and with the bear-market low occurring with some of our long-term valuation measures still in their top quintile. While the sample size is small, an 80% gain has been the limit for bull markets that followed non-recessionary bears. Relative to its “post-recession” counterparts, this particular strain of bull has delivered a much smaller average gain (+63.6% vs. +186.9%) over a shorter average lifespan (33 months vs. 61 months).

Given the conditions prevailing at the bull market’s starting point, the S&P 500 has been an overachiever. The same can’t be said for the broad U.S. market: The bull market gain to-date in the Equal Weighted S&P 1500 is a pathetic 31%. As we’ve detailed over the last few months, that has left our mythical and un-investible “median stock” sitting at valuations that are right inline with their 30-year average. The prospective opportunity for active equity managers to beat the top-heavy S&P 500 looks nearly as substantial as in early 2000. Today, though, institutional and client pressure to mimic the S&P 500 is probably greater today than it was in Y2K, and active managers are now in the minority (with 45% of U.S. equity assets, versus 75% in 2000). Good luck out there!

• As noted elsewhere in this section, some readers took issue with our contention last month that the U.S. market is “not quite” a bubble. While some well-known analysts have attempted to quantify bubble conditions (a “two-standard deviation move,” for example), we allow room for some subjectivity.
• From a valuation perspective, the recent highs put the S&P 500 in the same zip code as March 2000. By the way, every one of the five valuation measures shown in this table is now 50% or more above levels seen at another historic high—October 9, 2007.