The AI-Fueled Bull Market Turns Four, but Road to Milestone Five Presents Challenges

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City.

Brendan Mcdermid | Reuters

The global stock market recently marked a significant milestone, celebrating the fourth anniversary of its current bull-market run. Since reaching a closing low on Oct. 12, 2022, the S&P 500 has surged nearly 120%, a spectacular ascent driven largely by investor conviction in the transformative potential of artificial intelligence.

The catalyst for this unprecedented rally was the debut of ChatGPT in late 2022, which ignited a frantic hunt for AI-related opportunities. Stocks at the heart of this technological build-out—often described as the “picks and shovels” of the AI gold rush—soared to new heights.

Nvidia, the emblematic chipmaker that transitioned from supplying high-end graphics cards for video games to powering the AI revolution, has swelled to a market capitalization of approximately $5.5 trillion, surpassing the $1 trillion threshold for the first time in 2023. Fellow semiconductor giant Micron Technology joined the trillion-dollar club in May of this year.

These stellar gains propelled the broader market to new heights, helping equities navigate a series of macroeconomic worries. The S&P 500 recently breached the 7,800 level for the first time, hovering near record highs. This resilience is largely attributable to the index’s heavy weighting toward technology, which now accounts for roughly 40% of the broader market benchmark.

Yet, as the bull market ages, questions mount over how much steam remains in the engine. Investors are grappling with persistent concerns over sticky inflation, rising bond yields, and a more hawkish stance from the Federal Reserve.

From a historical perspective, the runway ahead may be narrowing. According to Ari Wald, head of technical analysis at Oppenheimer, the current bull market stands as the sixth longest among 24 cycles tracked since 1932. Wald’s research indicates that the median remaining duration before a cycle peaks is 13 months, pointing toward 2027 as a potential final leg of the rally. However, he noted that the median return during the fifth year remains a robust 21%, suggesting meaningful gains are still possible before a top is reached.

The sustainability of this upward trajectory depends heavily on market breadth, which has recently shown signs of deterioration. In September, three-quarters of S&P 500 constituents finished in negative territory, as fears of elevated interest rates drove investment back into a handful of mega-cap tech giants. Small-cap stocks, in particular, have struggled, with the Russell 2000 testing its 200-day moving average.

Wald warns that this relative weakness should be viewed as a cautionary signal rather than a buying opportunity until broader market participation improves. “In our view, relative weakness remains a warning, not an opportunity, until stronger market conditions can be reestablished,” he noted.

Corporate earnings present another hurdle. Although the third-quarter reporting season is anticipated to be solid, some analysts caution that results may fall short of the elevated expectations required to propel stock prices further.

In the tech sector, Deutsche Bank strategist Parag Thatte argues that the recent rotation into technology has become excessive, warning that the risk-reward dynamic is no longer attractive.

Despite these headwinds, many investors maintain an optimistic outlook, pointing to the market’s four-year resilience as evidence of robust fundamental earnings fueled by the ongoing AI infrastructure build-out. However, they acknowledge that identifying future winners will become increasingly difficult.

“To outperform, investors need a combination of owning stocks that grow fast and don’t miss—our core mantra,” Adam Parker, founder of Trivariate Research, said over the weekend. He maintained his positive stance, adding, “We continue to think that the US stock market will perform well.”

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