Since mid-October 2022, when the S&P 500 (SNPINDEX: ^GSPC) closed below $3,600, the stock market has been on an aggressive bull run. So aggressive has been the rally, so resilient and unfazed by any and every obstacle — from tariffs to war — that many are now left wondering how (and when) this bull market will come to an end.
A few weeks ago, Michael Hartnett at Bank of America weighed in on this question with an astute observation.
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On the last trading day of May (May 29), 20 of the S&P 500’s companies closed out at a record high, with only seven of those 20 unrelated in some capacity to artificial intelligence (AI). Hartnett, in a memo to clients, pointed out that this situation happened nearly 26 years ago, when 20 stocks hit new highs just before the internet bubble popped in March 2000.
Hartnett’s observation concurs with other similarities between the two periods, such as the Shiller P/E. This ratio, which is based on average inflation-adjusted earnings over the last decade, has averaged 17 over the last 155 years. Only twice has it crossed the 40 marker. The first was in the months running up to the 2000 bubble; the second time is today (about 41).
That’s not to say a crash is inevitable, only that Wall Street will be very sensitive to any disappointing or negative news.
Hartnett himself surmised that an interest rate hike is what will stymie this bull market. On June 26, Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects at least one rate hike before the end of 2026 — a change from his opinion just one month ago, when he said it was “too early” to conclude if rates would go up.
At the end of the day, a bear market is likely coming. Investors may want to consider diversifying their portfolios, especially if most of their holdings are in one sector, like tech.
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