Bull Market Turns Three: Defying Gravity on AI and Exuberance
Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.- Winston Churchill
The S&P 500’s bull market quietly turns three this month, and investors can’t help wondering how much longer it can defy gravity. History says bull markets typically last five to eight years, but averages rarely tell the full story. Fueled by the AI boom, lower taxes, Fed rate cuts, strong profits, and resilient consumers, this rally looks durable on paper. Yet beneath the optimism lingers a familiar question: how much of tomorrow’s growth is already priced in today?
After plunging 25% into the October 2022 lows, the index, powered by the tech and AI revolution, has surged nearly 80%, adding more than $11 trillion in market value and setting more than 30 record highs this year alone. (Source: S&P Global, FactSet.) It’s been one of the strongest recoveries in decades, yet few seem to trust it.
The federal government has been shut down for three weeks. Gold, after hitting record highs, is wobbling. U.S. debt is snowballing. Oil and bond yields are sliding. Two major wars and a renewed trade fight are testing global stability. Consumer sentiment from the University of Michigan hovers near historic lows, while CNN’s Fear & Greed Index remains buried in “extreme fear.” For a market pushing to new heights, confidence is in short supply.
Like NFL fans watching their team protect a narrow lead, investors are cheering their favorite tech stocks while waiting for the next turnover. Many worry the rally can’t last, with valuations stretched and rate-cut expectations wavering as tariffs stir inflation worries. It feels like we are sitting in the eye of a storm, calm for now but surrounded by uncertainty.
The October Effect
Younger investors may still feel echoes of October 2022, when recession fears dominated every headline. Older investors remember October 1987, when the Dow plunged 22.6% in a single day, the equivalent of nearly a 12,700-point drop today. Both serve as reminders that markets rarely move in straight lines but have always rewarded patience over panic.
Jon here. Should investors panic in year four of this bull market? Hardly. The smarter move is to stay disciplined, stay diversified, and remember that volatility is not a verdict, it’s part of the game.
While tech and AI continue to drive both returns and volatility in the S&P 500, our balanced, strategic portfolio management approach this year has focused on maintaining selective tech exposure while allocating across a broader range of market caps and sectors, including industrials, aerospace and defense, utilities, gold, financials, and both international and emerging markets. Most of these areas have matched or even outperformed the tech-heavy S&P 500 year to date – while helping to reduce portfolio turbulence and hedge against concentration risk.
On the fixed income side, we’ve diversified across both tax-free and taxable strategies, emphasizing shorter-duration positions while incorporating potential re-inflation hedges such as TIPS. In markets like these, balance isn’t boring – it’s essential.
Ai Driving the Market
The irony is hard to miss: as investors celebrate the promise of artificial intelligence, fueled by generative AI, they’re also trading in markets increasingly controlled by it.
It’s almost cliché to say we’re all betting on the next tech revolution while forgetting that machines already run the show – as if we’ve quietly entered The Matrix. Extreme stock market volatility is not driven by humans.
Algorithms and quantitative funds now drive roughly 63% of U.S. equity trading volume, according to the SEC’s 2020 report on algorithmic trading, and studies suggest they account for up to 80% of market activity from major news events to even a post on social media. The “AI future” investors are chasing is already here, silently directing the flow of capital in microseconds.
Market in Motion
After one of the calmest stretches in years, volatility has returned with force. A rekindled trade fight with China, mounting loan losses at regional banks, and renewed doubts over AI valuations have jolted investors back to attention.
Regional banks led the past week’s losses after Zions Bancorp revealed large loan write-downs tied to borrower fraud, reigniting concerns over smaller lenders already exposed to commercial real estate. At the same time, China’s new export limits on rare earths – key materials for chips, EVs, and defense systems, drew a sharp response from Washington. Talk of new U.S. tariffs sent stocks to their worst single day since April and snapped a 33-day streak without a 1% move.
Despite the noise, big banks like JPMorgan and Bank of America posted solid earnings, signaling that stress in the system remains contained. But it’s clear investors are bracing for a bumpier road ahead. As one trader put it, “the laundry list of worries is getting longer.”
Bull Market History
History suggests bull markets don’t die of old age. They end with a trigger such as a commodity crisis (1973 OPEC oil embargo), credit crisis (2008 real estate crash) or bubble (2000 dotcom).
Looking back over the past 50 years, there have been six other bull markets that lasted multiple years. The shortest among them ran five years, longer than today’s cycle. On average, they persisted about eight years, and two extended into double digits. (MarketWatch)
While this bull has shown impressive resilience, it’s not without fault lines. Market concentration remains extreme, with the top 10 companies making up over 40% of the S&P 500’s 11 sectors. (S&P Dow Jones Indices) Valuations are elevated. Both leave little room for error. Today, we’re not staring down a commodity crunch or a credit disaster. And while there are echoes of the dot-com era in parts of the AI trade, this isn’t 1999 – yet.
The Return of Exuberance
Alan Greenspan once warned of “irrational exuberance.” It was his way of saying investors sometimes lose their minds. People buy because prices keep rising, not because earnings or logic support them.
We’re not there yet, but we’re close. Valuations are stretched. Market concentration is high. Confidence borders on faith. That doesn’t mean the rally ends tomorrow. It means the discipline gap is widening.
Call it mid-cycle enthusiasm or plain human nature. Markets don’t need bad news to correct. They only need an excuse. For now, the market still believes. Cautious exuberance is the better stance. Cheer the gains, stay diversified, and keep your defense on the field.
Next up we’ll cover and disseminate a few of the recent hot headline topics and their potential effects.
Headlines on Rare Earth Metals and Trade
Rare earth metals remain one of China’s most powerful levers in trade and foreign policy. The country controls roughly 70% of global rare earth production and nearly 90% of processing capacity, creating a deep supply chain dependence across the U.S. and its allies.
Washington has begun rebuilding domestic capacity, tapping strategic stockpiles and issuing executive orders to boost mining and refining, but progress will take years, not months.
Negotiations over rare earth access are just one piece of the broader U.S.–China trade agenda. As the chart below shows, the U.S. continues to run a sizable trade deficit with China. Narrowing that gap while promoting domestic manufacturing remains a central, and politically charged, goal for the administration.
The results so far have been mixed – while some manufacturing has returned to the United States and there have been announcements of new investments, supply chains can’t shift overnight. The fact that the job market has weakened in recent months hasn’t helped: as of the August employment report, manufacturing employment had declined by 78,000 jobs this year.
For investors, it’s difficult to know if new tariff threats should be taken at face value, or are part of ongoing negotiations. This can lead to rapid shifts in sentiment and market behavior. For this reason, it’s important to not overreact to headlines, and let situations develop while focusing on the longer-term trends. Not only was this true during the first trade war in 2018 and 2019, but investors who overreacted earlier this year would have missed the swift market recovery.
Headlines on the VIX (Fear Index)
The latest market moves have raised market uncertainty and volatility. This is not surprising since investors have been worried about the market’s forward price-to-earnings ratio around 22.5x and concerns over the sustainability of the rally in artificial intelligence stocks.
While it’s important to understand what may be driving the market, history shows that periods of volatility are often when the investment opportunities are the greatest. Short-term concerns often result in better valuations, which in turn support long-term portfolios. The fact that it is challenging to invest during volatile periods is exactly why investors with the fortitude to do so are rewarded.
The accompanying chart highlights the relationship between the VIX index, a measure of stock market volatility, and the subsequent one-year forward returns for the S&P 500. Historically, spikes in the VIX have often resulted in strong forward returns, since this is when many investors are fearful of entering the market, or sell at inopportune times. This shows how counterproductive it can be to overreact to market swings.
Headlines and Corrections
The accompanying chart below illustrates that market declines of 5% or more occur regularly, even in positive years. While this year has felt volatile, the number of pullbacks has actually been average compared with the past 45 years. In fact, the market has defied expectations, with the S&P 500 up 31.5% from its April “Liberation Day” low and posting more than 30 new all-time highs so far this year.
The point is not that the market always goes up in a straight line, since it certainly does not. Instead, it’s that periods of market uncertainty are both normal and expected for markets, and investors should always be ready for short-term turbulence. Avoiding the tendency to worry about every new development that might derail the market is one of the keys to long-term financial success.
The bottom line? Short periods of volatility can be unnerving but are part of every market cycle, especially as trade tensions with China and shifting rate expectations test investor conviction. History shows that stretches of heightened uncertainty, while uncomfortable, often create the best opportunities for patient investors.
Market swings remind us that short-term turbulence is normal, but perspective is power. Staying diversified and disciplined helps investors focus on what matters most: long-term results, not daily headlines. The bull market turns three and appears to be in midlife, not decline. Volatility is the price of progress. Stay balanced, stay patient, and keep your defense on the field.
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an SEC Registered Investment Advisor based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
