Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

Three years strong: Can the bull market continue?

October 10, 2025

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Key Takeaways

• Tech and its derivatives have led returns thus far
• After hefty multiple expansion, earnings will need to take the driver’s seat
• History and fundamentals suggest the bull market can continue

Birthdays and anniversaries give us a chance to pause, reflect, and celebrate—a once-a- year moment to appreciate where we’ve been and look ahead to what’s next. This month, we mark John Lennon’s would-be 85th birthday, along with other noteworthy birthdays from Jerry Rice to Julia Roberts, and the upcoming 250th anniversary of the US Navy. There’s also reason to celebrate in financial markets: this Sunday marks the third anniversary of the current bull market that began on October 12, 2022. And what a run it’s been—the S&P 500 is up 88% on a price-return basis, making this the second-strongest start to a bull market in history, trailing only the 100% surge following the Great Financial Crisis. As we reflect on this anniversary, two big questions loom for investors: What has driven equities to this point? And can this rally keep going? We share our answers below. Spoiler alert: we believe strong fundamentals give this bull market plenty of room to run.

• Which Areas Of The Equity Market Have Led? | Since this bull market began, all 11 sectors of the S&P 500 have posted gains—but the story beneath the surface is far from uniform. Secular trends, especially the rise of AI, have powered tech-heavy sectors to the front of the pack. Information Technology is up an incredible 185%, and Communication Services has surged 167%, leaving Energy—the laggard at +23%— more than 150% behind. That’s the widest gap between top and bottom sectors since sector data began in 1990. The dominance of mega- cap tech has amplified this dispersion at the index level. Our MAGMAN* composite (mega-cap tech names) has outperformed the rest of the S&P 500 by 120%. Large caps have beaten small caps by 42%, and the S&P 500 has outpaced the Dow by 29%—the biggest spread in any bull market on record. Could out-of-favor areas catch up? Possibly. But we expect secular forces—AI investment, defense and reshoring capex, and aging demographics—to remain the primary drivers of performance. That’s why we continue to favor Technology, Industrials, and Health Care as the leaders going forward.
• Has The Rally Been Backed By Fundamentals? | So far, roughly two-thirds of this bull market’s gains have come from P/E expansion. For context, at this stage of previous bull markets, multiple expansion typically accounts for about 45% of returns. Now, with valuations sitting in the 97th percentile versus historical norms, earnings will need to take the baton to keep the rally going. The good news? The 3Q25 earnings season kicks off next week with the big banks, and expectations are strong. Consensus calls for 8% EPS growth in Q3—and if companies beat by the usual margin, it would mark the fourth straight quarter of double-digit earnings growth, the longest streak since late 2021. Looking ahead, we anticipate 11% earnings growth in 2026, and the consensus is even more optimistic. That kind of fundamental strength should provide the support needed to push this bull market higher.
• What Does History Tell Us About the Fourth Year? | Looking back, the third year of a bull market is usually the toughest—historically marked by volatility and muted returns. On average, it delivers just 2.5%, the weakest of the cycle, and is positive only half the time. Last year certainly brought plenty of volatility but returns broke the mold. Despite trade war drama driving an 18.9% peak-to-trough drop—the largest third-year drawdown ever—the S&P 500 still finished up about 15% (October 12, 2024 to now), the strongest third-year gain on record. History suggests strength often carries into year four, with the S&P 500 historically adding another 14% and posting gains 88% of the time. That said, we expect a more muted outcome in 2026. Elevated valuations, the typical drag of a midterm election year (historically the weakest in the presidential cycle), and tariff-related headwinds for earnings could weigh on performance. Our 12-month target of 6,900 for the S&P 500 implies just 4% upside on a total return basis from here.
• Can The Bull Market Continue? | Longer term, both history and fundamentals point to ‘yes.’ From a historical perspective dating back to 1945, this bull market is still in its early to mid-innings—just three years old versus the average 5.5-year lifespan. And while the S&P 500 has climbed 88% so far, that’s well below the historical average of roughly 190%. As the proverbial adage says, “bull markets don’t die of old age” which means there’s room for more upside, assuming fundamentals hold. On that front, we see plenty of support: accelerating GDP and EPS growth into 2026, powerful secular trends like AI investment and reshoring, the tailwind of additional Fed rate cuts, and continued shareholder-friendly moves like dividends and buybacks. These factors should keep the bull market alive and well over the next 12 months. The one caveat: stretched valuations will likely cap the size of near-term gains—but the trend remains positive.

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All expressions of opinion reflect the judgment of the author(s) and the Investment Strategy Committee, and are subject to change. This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices and peer groups are not available for direct investment. Any investor who attempts to mimic the performance of an index or peer group would incur fees and expenses that would reduce returns. No investment strategy can guarantee success. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital.

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