Stocks have climbed for about 1,000 trading days, the longest run since the 2009-2020 bull market. The 10-year Treasury yield breached levels last seen in 2002 last week, and stocks finished the week higher anyway.
The bull market that began on Oct. 12, 2022, reached its fourth anniversary on Monday, and it is doing something most bull markets do not: rising alongside long-term interest rates.
The S&P 500 has gained more than 110% since that low, across roughly 1,000 trading days. Finding a longer bull market requires going back to the rally of 2009 to 2020, which the pandemic cut short.
The index closed Friday at 7,811.54, up 0.59% on the day. The Dow Jones Industrial Average finished at 51,654.95 and the Nasdaq Composite at 27,366.17. Last week was the Nasdaq Composite's fourth straight weekly advance; the S&P 500 and the Dow each rose for the second time in three weeks. Futures pointed to a modestly higher open on Monday.
The yield problem
The anniversary arrives with the 10-year Treasury yield near 5.24%. Last week it climbed to levels last seen in 2002, which puts long-term borrowing costs above anything this bull market has previously faced. The Federal Reserve raised rates in September for the first time since 2023, and Brent crude has stayed above $100 a barrel.
Higher yields usually work against stocks in two ways. They raise companies' borrowing costs, and they raise the return investors can earn without taking equity risk. That stocks closed last week higher, as yields hit a 24-year high, says something about what investors are paying for.
What has carried it
The answer, for now, is earnings. Analysts expect the third quarter to be the fourth in a row of very strong profit growth for S&P 500 companies, much of it tied to the buildout of data centers for artificial intelligence. Investors have been willing to tolerate higher discount rates as long as profits rise faster.
Volatility is low. The Cboe Volatility Index, a gauge of expected swings in the S&P 500, was near 15.4 early Monday.
Two readings
One reading is that this is a profit-driven bull market that can absorb higher rates. Earnings growth has been strong enough for four quarters to outrun the rise in yields, and the market has shown repeatedly that it will look through geopolitical shocks.
The other is that the bull market is running short of margin for error. Long-term rates are at a 24-year high, the Fed has resumed raising rates, oil is above $100, and a market priced for continued high earnings growth is more exposed to any disappointment in the coming weeks' results.
The next test
This week brings the first big banks' third-quarter results on Tuesday and Wednesday, and September consumer prices on Wednesday. Together they will show whether earnings are still outrunning rates, which is the condition on which the bull market's fifth year depends.