The S&P 500 Index has advanced 71% since entering the current bull market in October 2022. Strong consumer spending and business investments have contributed to this upside, leading to robust corporate earnings growth in recent quarters. Since its inception in March 1957, the S&P 500 has experienced 10 bull markets.
Historically, the index has returned an average of 184% during bull markets, which typically run for about 1,964 days. The current bull market, which began 861 days ago, has seen the index return 71%. If it follows the historical average, the S&P 500 is projected to advance to 10,160, implying a 66% rise from its current level of 6,130.
This trajectory suggests the current bull market could continue until late February 2028, yielding approximately 18% annually. Several economic indicators support the continuation of the bull market. In January, the manufacturing sector expanded for the first time in over two years, and the services sector has grown for 56 consecutive months.
Wall Street also expects S&P 500 companies to report accelerating revenue and earnings growth this year. However, there are signs that the bullish momentum may be waning. Bearish sentiment in February 2025 reached its highest level since November 2023, according to the American Association of Individual Investors.
Bull market trajectory and risks
Additionally, while inflation had been trending lower over the last three years, consumer price increases have now accelerated for four consecutive months. Ed Yardeni of Yardeni Research believes the S&P 500 will remain in a bull market through the end of the decade, driven by economic resilience and strong earnings growth.
Conversely, Andrew Simmon at Morgan Stanley thinks the S&P 500 is in the late stages of the bull market, and Gene Munster at Deepwater Asset Management predicts a significant market correction in about two years. The U.S. economy remains resilient with a real GDP growth of 2.8% in 2024, above the 10-year average of 2.5%. The unemployment rate fell to 4% in January 2025, well below the 10-year average of 4.7%.
However, business fixed investments declined in the fourth quarter for the first time in nearly two years, and inflation has accelerated for four consecutive months, potentially weakening consumer spending. The S&P 500 currently trades at a forward price-to-earnings (PE) ratio of 22.2, which is a premium to the 10-year average of 18.3 according to FactSet Research. Historically, the S&P 500 has only achieved a forward PE ratio above 22 during the dot-com bubble in the late 1990s and the COVID-19 pandemic in the early 2020s, both of which were followed by sharp market sell-offs.
While history suggests the S&P 500 bull market could continue for several more years, rising inflation and elevated valuations pose significant risks for 2025. This does not necessarily indicate an imminent market crash, but it does suggest that investors should remain cautious, scrutinize valuations, and perhaps maintain a higher cash position to capitalize on future market downturns. Investors should also focus on their best investment ideas and remain disciplined, as the market environment continues to evolve.
While the future is uncertain, understanding historical trends and current economic indicators can help guide investment decisions.