Do bull markets die of old age?

By Joe Aylott, Multi-Asset Strategist

With the current bull market now into its fourth year, and with many global stock indices at or near record levels, investors could be forgiven for feeling jittery. They may be wondering if this bull market is about to die of old age. 

However, in our view that is not the case. 

Bull markets (defined as a gain in stock market prices of at least 20% over a sustained period) tend to coincide with periods of robust economic expansion, low levels of unemployment and increasing consumer spending. 

Looking at the S&P 500, the 12 bull markets seen since World War II have, on average, returned +192% and lasted about five years. The longest ones – which started in 1987 and 2009 – lasted much longer and produced cumulative gains of more than 400%. 

The current equity rally is now more than three years old, having been born in the throes of double-digit inflation and 500 basis point increases in US interest rates. This followed serious global economic shocks caused by the Covid pandemic and Russia’s invasion of Ukraine. 

Since it began in October 2022, share prices in the US stock market have doubled. This places the current rally eighth in terms of performance among those 12 previous bull markets, and ninth in terms of duration. 

Historically speaking, there could therefore still be potential for further gains.

Past performance should not be taken as an indication of future performance. You should continue to hold cash for your short-term needs.

Bull markets generally don’t die of old age. They come to an end when impending recessions reverse earnings and deflate the multiples that investors are willing to pay for them. Or they may end when the US Federal Reserve (Fed) hikes interest rates sufficiently to stop the rally (see chart below).  

In contrast, today we are seeing early signs that the global economy could re-accelerate in 2026. And whilst the Fed’s rate cutting cycle may end this year, there is very little to suggest we will see rate hikes any time soon.

Moreover, this bull market has not been as narrow in terms of the sectors experiencing growth as is often claimed. Our analysis shows that, while the technology and communications sectors have led gains in the S&P 500 since October 2022, up 180% and 187% respectively, the third and fourth biggest sector gains have come from industrials and financials – up 91% and 84% respectively. 

Given the potential for an acceleration in growth in 2026, this positive participation from other sectors could increase.

At some point, either a recession or a Fed hiking cycle will likely cause this bull market to end. There are a number of factors that can determine the depth or duration of the subsequent potential bear market, which is defined as a decline in stock market prices of 20% or more over a sustained period. 

Imbalances that have built up during the bull market can provide some insight into how significant the decline might be. 

Private sector leverage is the most obvious example of this. In essence, bull markets that occur alongside large private sector credit booms tend to see more severe market impact when the cycle turns. 

The most recent example of this was the global financial crisis (GFC) in 2008, when the high leverage on private sector balance sheets contributed to a slow economic recovery. However, current dynamics are much better. 

In the UK, for example, companies are in solid financial shape having deleveraged significantly since the GFC. Corporate and household debt has fallen from 247% of GDP in 2009 to 157% today, according to the International Monetary Fund – as we mentioned in the CIO Weekly earlier this month. A similar deleveraging has taken place in the US, where corporate and household debt has come down from 235% of GDP in 2009 to 217% today.

Valuations can also have an impact. Today, markets trade at elevated multiples, which does pose a potential challenge. 

At Coutts, we incorporate this into our portfolio positioning via our Anchor process, which guides our long-term decision making. But in our view the valuation premium of today’s equity market is justified by its quality and profitability.