We Are About to Enter the Second Year of the Bull Market. Here's What's Needed for Further Gains Ahead

The current bull market has been remarkably robust, even when compared to historical precedents. Since bottoming out in a bear market in October 2022, the S&P 500 has surged by approximately 60%, driven by easing inflation and growing enthusiasm around the advancements in artificial intelligence (AI). This impressive rally has pushed the broad market index to an all-time high, surpassing 5,700. Some market analysts are even projecting that it could reach 6,000 by the end of the year.

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As the bull market approaches its second anniversary, it stands on the brink of securing its place among the top performers. If the rally holds through October 12, it would become the fourth-strongest among the 13 cyclical bull markets that have lasted at least two years, according to research from Ned Davis Research.

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Ed Clissold, the chief U.S. strategist at Ned Davis Research, provided some insight into the factors that are fueling this strong market. He emphasized that bull markets don’t simply fade away due to age but are often sustained by specific economic conditions. For the current gains to continue, Clissold pointed to three key factors that need to stay in place.

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The first factor is the continuation of disinflation. Clissold explained that the disinflationary trend has been a defining feature of this cyclical bull market. Inflation, which was a major concern in 2021, has eased considerably. In August, the Consumer Price Index (CPI) rose by 2.5% on an annualized basis, bringing it closer to the Federal Reserve’s target of 2%. For the bull market to maintain its momentum, inflation needs to remain under control, allowing the economic environment to stay favorable for growth.

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The second critical element is achieving a soft landing for the economy. The Federal Reserve has already taken steps to support this goal, cutting interest rates by half a percentage point last month. The central bank is walking a delicate line, aiming to balance cooling inflation with signs of weakness in the labor market. Clissold noted that, at least for now, the risk of a recession remains low in the short term. The expectation is that the economy’s growth will moderate, which should give the Fed room to continue reducing interest rates at a measured pace. This gradual approach would support the ongoing bull market by keeping borrowing costs low and encouraging investment.

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The third and final factor that Clissold identified is strong earnings growth. Corporate earnings have been a crucial driver of the stock market's performance, and this trend needs to persist for the bull market to continue its upward trajectory. According to data from FactSet, analysts are forecasting a 4.6% year-over-year growth in earnings for the S&P 500 during the third quarter. If this projection holds true, it would mark the fifth consecutive quarter of profit growth for the index. Such consistent earnings expansion is a positive sign for investors and suggests that companies are navigating the current economic environment effectively, further supporting the market’s rally.

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While these three factors—disinflation, a soft landing, and strong earnings—are essential to maintaining the bull market, Clissold remains optimistic that these conditions will hold, at least in the near term. The combination of easing inflation, low recession risk, and steady earnings growth presents a favorable backdrop for the market to continue climbing.

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In addition to the broader market outlook, specific stocks are also catching the attention of analysts. One notable upgrade came from JPMorgan, which raised its rating on EVgo, an electric vehicle (EV) charging company, from neutral to overweight. The bank’s analysts see nearly 80% upside potential for the stock.

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JPMorgan’s bullish outlook on EVgo is based on the company’s revenue model, which generates income from every kilowatt of electricity dispensed to EV drivers. The firm is expected to benefit from increased utilization of its chargers, particularly if competing charging networks face difficulties deploying new chargers due to weak demand. As more drivers adopt electric vehicles and rely on public charging infrastructure, EVgo is well-positioned to capture a growing share of the market.

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JPMorgan’s upgrade reflects a broader trend of optimism around companies that are poised to benefit from the shift to clean energy and electric vehicles. As governments and businesses worldwide invest in the infrastructure needed to support EVs, companies like EVgo stand to gain from higher demand for charging services.

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In summary, the current bull market has been remarkably strong, with the S&P 500 rising by 60% since October 2022. Easing inflation, optimism around AI, and strong corporate earnings have fueled this rally, and market analysts believe it could continue if key conditions remain in place. Disinflation, a soft economic landing, and earnings growth are crucial to sustaining the market’s upward trajectory. Additionally, specific stocks, such as EVgo, are being highlighted as potential winners in the evolving market landscape, further contributing to the overall bullish sentiment on Wall Street.

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