This bull market has really climbed a wall of worry
The U.S. equity market has overcome every obstacle in its path over the past six years - and there have been many.
Bull markets climb a wall of worry, as the old saying goes.
The past six years tested just how high that wall can get.
Despite a number of shocks and surprises - a global pandemic, a tariff scare and a war with Iran, to name a few - returns in the U.S. stock market have been strong relative to history since the end of 2019.
Through Friday's close, the S&P 500 SPX, the closely followed equity market benchmark, has tallied a compound annual growth rate of more than 15%, according to Dow Jones Market Data. That's on track for the strongest six-year stretch since the one that began in 1994, just as the dot-com craze was beginning to take shape. It is also well above the historical CAGR of 11.3% going back to Jan. 4, 1988.
To have reaped the maximum benefit, an investor would have needed to keep their money in the market continuously during this entire stretch. That would have meant sitting tight through the painful bear market of 2022, among other obstacles.
Easier said than done. Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, offered a fairly comprehensive list of the headlines that one would have needed to ignore, in a recent post on his blog, "A Wealth of Common Sense." MarketWatch has reproduced that list below, more or less in chronological order:
-- A global pandemic
-- The fastest 30%+ drawdown in history
-- A supply-chain crisis
-- Meme-stock mania
-- A 40-year-high inflation rate of 9%
-- Russia invading Ukraine
-- $140-a-barrel oil prices
-- The Fed hiking rates 75 basis points in back-to-back meetings
-- Short-term bond yields go from 0% to 5%
-- An inverted yield curve
-- Silicon Valley Bank crisis
-- The 2022 bear market
-- The worst bond-market crash in history
-- One of the worst years ever for a 60/40 portfolio
-- Mortgage rates go from 3% to 8%
-- Everyone predicting a commercial real-estate crisis
-- Evergrande/China real-estate crisis
-- Government shutdowns
-- Debt-ceiling standoffs
-- U.S. credit-rating downgrade
-- The yen carry-trade unwind
-- "Liberation day" tariffs
-- The Iran war
-- Oil/gas prices spike (again)
-- 30-year Treasury yields move to the highest levels since 2007
If the headlines themselves weren't scary enough, seemingly innumerable warnings from high-profile investors including Michael Burry and Jeremy Grantham might have done the trick. But despite the pessimism frequently articulated by bearish investors, year after year, stock prices in recent decades have generally powered higher.
An analysis from Cetera Financial Group showed that the average annual maximum drawdown for the S&P 500 since 1980 has been 14.6%. In hindsight, we can safely say each of those was a dip worth buying.
Past returns aren't a guarantee of future performance. But after such a strong stretch, some on Wall Street anticipate that stocks could be heading for a lost decade. Still, it's worth keeping in mind that stocks typically rise over the long term, particularly in these uncertain times.
"You've got a war with Iran, you have uncertainty around tariffs, uncertainty around the Fed and uncertainty around inflation - yet the market mostly shrugs, because corporate earnings have been so strong," said Gene Goldman, chief investment officer at Cetera.
Over the past few quarters, corporate earnings growth has blown away Wall Street's expectations. As of Monday, the S&P 500 was on track to report a blended year-over-year growth rate in earnings per share of 50.5% for the second quarter, with more than 90% of companies reporting.
This would be the strongest quarter-over-quarter growth rate since the second quarter of 2021, when earnings nearly doubled as the global economy emerged from the worst of the pandemic-era lockdowns. More importantly, analysts expect the good times to keep on rolling in 2026 and 2027, as average EPS estimates have continued to climb during the second half of 2026.
"Worrisome events have been happening since the beginning of time, and there's no reason to believe they'll ever stop. It's just a reality that investors have to live with," said Sam Ro, author of TKer, a Substack about the market.
Living with these risks is one of the biggest reasons why investors can expect stronger returns from a portfolio of stocks than other assets, like bonds. Investors know there is always a chance that corporate earnings might take a hit for one reason or another, and they demand higher returns to compensate for any short-term pain.
That isn't to say that stocks don't occasionally endure periods of subpar returns. During the Great Depression, the market went nowhere for more than a decade. More recently, the S&P 500 suffered through a lost decade during the 2000s, hurt by the one-two punch of the dot-com bubble bursting, and, later, the 2008 financial crisis. But these instances are historically rare. And the larger point still stands: Investors who managed to sit tight during the 2000s were handsomely rewarded.
Returning to the pandemic example, corporate profit margins soared after COVID-19 went global. This ultimately helped to lift, not lower, stock prices.
"That explains why stocks usually quickly recover any losses they might've experienced on the news," Ro said.
Abhirami Shrinivas, Ken Jimenez and Terrence Horan contributed
-Joseph Adinolfi
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