For 3 Years, the Bull Market Defied Inflation, Tariffs and Gravity

It’s been a lurching ride, and in April, it seemed to be over. But the bull market in the S&P 500 survived the severe downturn set off by President Trump’s tariffs, along with countless other setbacks.

Consider how far the bull market has come since its unheralded birth a little over three years ago during the Biden administration. The S&P 500 at that point had fallen more than 25 percent amid soaring pandemic-era inflation and rising interest rates. But on Oct. 12, 2022, the U.S. stock market turned.

From that date through Oct. 8 of this year, the S&P 500 stock index gained nearly 88 percent. Including dividends, according to FactSet, a financial data firm, investments in low-cost S&P 500 index funds returned more than 97 percent. That means that investors in low-cost, market-tracking index funds were able to nearly double their money since the bull market’s start.

But when the bull market was born, almost nobody noticed. “There’s a saying on Wall Street that there’s always a bull market somewhere,” CNN said on Oct. 31, 2022, but, it added, wherever the bull might have gone, it certainly wasn’t in the United States. “The broader market is undeniably struggling this year,” CNN said.

I missed that boat, too. On Oct. 21, 2022, I wrote a column, “Investing in the Shadow of a Recession,” with this summary: “Recessions come in many varieties. Any would bring pain, but if history is a guide, stocks and bonds are likely to rise eventually.”

I was focused on a possible recession — which didn’t happen — and failed to see that a bull market had already begun. Obviously, I didn’t know where either the economy or the market was going. But at least I knew that I didn’t know. Because stocks tend to rise over many decades, I believed then, as I do now, that it makes sense to keep investing in them for the long term, regardless.

Defining Terms

Over the last three years, hanging on through downturns has been a solid strategy — even when President Trump’s “Liberation Day” tariff announcement on April 2 set off a market crash.

The bull market almost perished then. In the middle of the trading day on April 7, the S&P 500 was down more than 20 percent from its latest peak. If it had closed at that level, according to Howard Silverblatt, a senior index analyst for S&P Dow Jones Indices, the bull market would have ended and a bear market would have begun. But the market rose from that dire level later in the day. By barely a whisker, the bull market kept on going.

How’s that? It has to do with the way bull and bear markets are customarily defined — whether the market has already risen or fallen at least 20 percent. The terminology is often misused as a prescription for the future, as though simply declaring that we’re in a bull market means that stocks must keep rising. That’s magical thinking. The reality is much more prosaic.

Basically, because the S&P 500 peaked before Oct. 12 this year, we can’t know that the bull market is three years old until the market rises above that level again.

Keith Lerner, the chief investment officer at Truist Advisory, a unit of Truist, the commercial bank, explained it this way in a phone conversation. “We think the bull market is continuing, that it deserves the benefit of the doubt,” he said. “But, technically, we won’t know that it’s continuing until it has risen above its last peak,” which happened to have occurred on Oct. 8, several days before the bull reached its third birthday.

“Suppose a year from now, in hindsight, that we know that the market went down 20 percent from that point,” he said. “Well, the bull market would have ‘officially’ ended at its last peak.” A bear market would have started on Oct. 8, 2025. The bull market would have ended before it turned 3.

Up or Down?

That said, Mr. Lerner identified four major factors that suggest the bull is probably — but not certainly — still alive.

The first is history. Since 1957, he pointed out, seven previous bull markets had survived for at least three years. Having made it that far, they all went further. Each of them gained ground in the following year, with a median increase of 13 percent.

Second is the economy. “Recessions are bull market killers,” Mr. Lerner wrote in an analysis for clients. At the moment, the consensus among economists is that while the labor market is weakening and tariffs are likely to bite into growth, no recession appears to be imminent. Inflation is a worry and tariffs could still set off a new price spiral, yet the Federal Reserve has begun cutting interest rates. But unless there’s a recession, the bull market could persevere.

Third is a rubric that Mr. Lerner calls “fundamentals.” In his view, these include corporate earnings, which remain strong; share price valuations, which are stretched; and market concentration, which is extreme. A separate study by Adam Turnquist, the chief technical strategist for the wealth management firm LPL Financial, found that “since July 1, shares of Nvidia, Alphabet, Apple, Broadcom and Tesla have collectively accounted for 60 percent of the S&P 500’s total return through Oct. 14.”

This array of fundamentals strikes me as ambiguous, but Mr. Lerner emphasizes that earnings are “the North Star” of this bull market. Despite tariffs, public companies are earning handsome profits. The S&P 500 “will likely report earnings growth above 13 percent for the third quarter, which would mark the fourth straight quarter of double-digit growth,” John Butters, a senior earnings analyst at FactSet, wrote in another report.

Finally, Mr. Lerner cited what he called market signals, including price trends, stock performance during particular months and seasons, and the like. This arcane area is not in my comfort zone. As a long-term investor, I have no strong view here. In our conversation, Mr. Lerner said that while the stock market had been rocky lately and tariffs remained a major problem, many global stock markets had been moving upward and investor sentiment hadn’t yet reached extreme levels of exuberance.

On balance, Mr. Lerner sees the various market factors as positive. “I’d be careful about taking on a lot of risk,” he said. “But we think the U.S. stock market will still rise.”

I’d say simply that when a market has been climbing for several years, participants in that market come to expect that it will keep doing so. That tends to drive prices higher, for a while.

At some point, the music will stop, though. There are plenty of problems to point to now. Optimism is rampant about the future of artificial intelligence and its supposed ability to fuel the growth of both the economy and the stock market. There is so much optimism, in fact, that it seems increasingly likely that some tech stocks — as well as investment vehicles that hold cryptocurrency — have entered a bubble.

Beyond that, President Trump’s tariff policy could easily set off further downturns. It has generated anxiety and uncertainty among investors, geopolitical strategists and businesses for months. At the moment, the Budget Lab at Yale estimates that the effective U.S. tariff rate is above 17 percent, the highest level since the 1930s.

Tariffs have re-emerged as an acute problem over the last couple of weeks, with an escalation in the trade war between the United States and China. On Oct. 10, tariff threats set off the biggest one-day plunge in U.S. stocks since April.

Yet, depending on your perspective, the tariffs may be less troubling than some of the domestic news lately. Mr. Trump has ordered the National Guard into major cities. The U.S. government has been shut down since Oct. 1 in a vituperative dispute. Democrats in Congress have rejected the cuts to Medicaid and Affordable Care Act subsidies imposed by congressional Republicans and the Trump administration.

Deportations continue, reducing the size of the labor force. Freedom of expression and funds for research have been curtailed at U.S. universities, and the Trump administration has threatened the independence of the Fed.

No wonder that just as the bull market’s birthday approached, the market fell.

Even so, I’d say that until proven otherwise, the bull market lives on. It’s had a tremendous run, by any measure, and after what it’s endured, it deserves respect. The U.S. stock market is a powerful and defiant beast.