How Much Longer Can the Current Bull Market Last? History Provides a Clear Answer.

Key Points

• The stock market has been led higher by AI stocks since late 2022.
• The current bull market looks similar to other bull runs from the past.
• There are a few reasons to remain optimistic about the current market.
• 10 stocks we like better than S&P 500 Index ›

The last four years have been a fantastic time to be a stock investor. The S&P 500 (SNPINDEX: ^GSPC) is up 116% from its closing low on Oct. 12, 2022. With the market led higher by artificial intelligence stocks, the tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) is up even more: 155%.

But as we near the fourth anniversary of the current bull market, some investors may be wondering if the good times can keep rolling. Markets move in cycles. Some financial, economic, or geopolitical force will eventually break the market, right?

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Even though the current bull market feels like it may be getting long in the tooth, history suggests it can last even longer. Here's exactly how much longer the bull market could last and why investors should remain optimistic.

How out of the ordinary is the current bull market?

At nearly four years old, the current bull market is still more than 18 months short of the average length of a bull market since 1949. What's more, bull markets that last at least three years typically last much longer. Only two out of the eight bull markets of at least three years didn't make it to year five.

And those were both more than 50 years ago. Bull markets tend to last longer now.

Some might argue that even though the current bull market is relatively young, it's climbed so quickly that it'll burn out faster. While the 116% climb in the S&P 500 is greater than the average for bull markets in the first four years, it's not unprecedented. The bull market of the mid-1980s produced an even greater gain in the same period; it lasted for five full years, with a total gain of 229% on the index. Likewise, the bull market that started in 2009 produced a similar return over the same period and ultimately lasted until 2020, delivering a 400% gain.

Some point out that the secular bull market dates back to early 2009. We haven't experienced an extended bear market that failed to recover the inflation-adjusted market high since the Great Recession. The 17.5-year secular bull market has produced an annualized inflation-adjusted total return of 13.2% through June. The two previous secular bull markets lasted 18 years (1982-2000) and 19.5 years (1949-1968) and produced even better inflation-adjusted total annualized returns (15.3% and 13.3%).

Indeed, the current bull market isn't out of the ordinary at all compared to previous bull markets. In fact, it looks like a very healthy market that can continue to climb higher.

What reasons are there to be optimistic?

There are a few reasons to be optimistic that this bull market can continue pushing prices higher.

First, we've seen broader participation in the bull market this year than in the last three years. It's not just AI stocks pushing the S&P 500 higher this year. Smaller companies in sectors outside of technology are climbing higher this year.

More than 65% of S&P 500 stocks were outperforming the index as of mid-August, the highest percentage since 2001. Broader market participation after years of narrow market growth is a sign of a strong bull market.

That price strength is driven by earnings growth, too. While there's been a lot of focus on the "Magnificent Seven" stocks, companies outside of those megacap tech stocks reported earnings growth of 31.8% last quarter. Analysts currently expect the companies to produce earnings growth of about 26.8% in the back half of the year.

It's not like the Magnificent Seven companies are slouches either. They're still growing earnings quickly as a group as well. Overall, analysts expect earnings growth of 14.4% next year, pushing the forward P/E ratio to 19.6, below its five-year average.

While that valuation remains high relative to long-term historical averages, there are reasons for valuations to remain higher today than in the past -- notably, very strong earnings relative to GDP and expectations for continued growth. Analysts' long-term projections call for 26% average earnings growth for the S&P 500 over the next five years.

That said, investors should remain cautious when buying into a market with high valuations. Focusing on quality companies with strong balance sheets can protect against any potential downside. As mentioned, another bear market will eventually hit stock investors. But history suggests we could be waiting quite some time before that happens.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.