History Says the Stock Market Has Room to Go Much Higher

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The S&P 500 bottomed on October 12, 2022 at 3,577.

Three years later and the index has climbed 83 percent and the bull market remains intact with more room to run.

That’s not even half the average 191 percent return of the prior 11 bull markets, according to Ryan Detrick of Carson Research.

History suggests three years is still “young” compared to the other bull runs.

There have been 11 other bull markets since World War II, and only once did a bull make it this far without reaching its fourth anniversary.

“Just remember, prior bulls that made it this far had many years left,” Detrick said.

While some Wall Street strategists point to elevated valuations and dot-com comparisons as reason to believe the rally will soon end, the AI trade continues to accelerate and recession fears have dwindled all year.

Unprecedented Big Tech strength, however, has created a narrow and top-heavy market.

The equal-weight S&P 500, for instance, has underperformed the traditional market-cap weighted benchmark over the last three years.

A few details on the performance gap:

• A handful of mega-cap drive the market
• Index-fund investors are increasingly concentrated
• Breadth remains weak even as the index hits records
• The average S&P 500 stock has seen modest returns

Depending how optimistically you view the data, you could see all of the above as a signal of resilience or fragility — resilience because the top is so strong, fragility because leadership is so narrow.

Broader economic factors like the Federal Reserve, disruptions in Washington, and geopolitical uncertainty have done little to discourage investors so far.

As far as the central bank, markets see multiple rate cuts heading into 2026.

The outlook remains paradoxical. Good news for the economy isn’t necessarily good news for stocks.

If the economy does get stronger, it could mean fewer rate cuts are needed and so dampen investor enthusiasm.

If growth slows, it could push policymakers to cut rates more than expected — which could push stocks higher.

“Something has to give,” said Seth Carpenter, chief global economist for Morgan Stanley. “If the economy is strong, the market is expecting too many cuts, and if the economy is weak, earnings are likely not as good as hoped.”