The bull enters its prime

Executive summary:

• US equities are now in their fourth year of a powerful bull market, up more than 80% since 2022.
• Resilient earnings growth and a mixed-but-still-benign macro backdrop continue to support risk assets.
• We see continued strength in mega caps and favor an active approach to small- and mid-capitalization (cap) exposure as a source of diversification amid emerging opportunities.
• We believe comparisons to the 1990s internet bubble are misplaced—if anything, history suggests the current cycle still has room to run.
   

A bull turns three

In nature, depending on the breed, a bull’s lifespan can extend well beyond a decade. Bulls typically reach puberty by around nine months and attain full strength—their physical peak—between three and four years of age. They then spend several years in their prime, often remaining dominant past the age of six or seven.

Meanwhile, US equities have now entered their fourth year of a record-breaking bull market. Since bottoming on October 12, 2022, the S&P 500 Net Total Return (NTR) Index has surged more than 80% and set more than 200 new all-time highs.¹ The rally has also been remarkably stable: The index has recently logged the third-longest streak in over two decades without a single-day loss of 3% or more.² Drawdowns have been limited, with only two corrections exceeding 10% during this period. The sharpest pullback came after the tariff announcements in April, when equities briefly flirted with a bear market—down 18.7% from their peak—before rebounding at exceptional speed.³

We believe that while ambitious valuations and stretched technical market conditions call for continued diversification, the broader backdrop for US equities remains highly constructive. Investors may consider looking beyond traditional exposures to capture any remaining upside.

Fundamental corporate strength masks an ambiguous macro picture

New tariff-induced volatility may point to a more cautious environment over the short term. However, solid fundamentals in the US equity market continue to underpin recent highs. US real gross domestic product (GDP) is forecast to grow steadily into the end of 2026.⁴ The consumer price index broadly continues to trend lower, despite some recent spikes.⁵ At this stage, we don’t view visible cracks in the labor market to be bearish signals. On the contrary, the ambiguous top-down picture drives the markets’ Federal Reserve (Fed) interest-rate cut optimism, which in turn may help justify elevated valuations.

Meanwhile, from a bottom-up, corporate level, US companies have shown impressive earnings growth. Nearly 70% of firms delivered positive earnings surprises for the second quarter of this year, in line with historical averages.⁶ Strength in earnings is also expected to continue, with earnings-per-share growth of 11.9% expected for 2025, and 13.2% for 2026.⁷ For the upcoming third quarter earnings season, consensus expectations have risen unusually since the end of June—reversing a typical pattern where analyst forecasts often start out higher and are revised lower ahead of actual results.

The case for mega caps

Diving deeper into the recent rally, mega-cap stocks are fueling market momentum. While market breadth has cyclically recovered as of October 2025, the long-term trajectory toward narrower leadership remains intact. The correlation between daily S&P 500 returns and “net advancers”—the number of stocks up minus the number of stocks down on any given day—has been decreasing for at least a decade.⁸

Narrow leadership isn’t necessarily a flaw in our view. It’s increasingly structural, anchored in innovation and the urgent need for scale (as exemplified by recent high-profile deals in the technology space worth hundreds of billions of dollars). In other words, highly concentrated markets during rallies are not a bug—they are a feature, in our view.

Mega caps have also proven resilient to market corrections compared to the S&P 500. While the largest names offer a distinct risk-on profile, their drawdowns are usually in line with, and sometimes lower than, those of the broad market. At the same time, they reliably rally harder during uptrends. Over the past 10 years, the Solactive US Mega Cap 100 Select Index NTR exhibits a rally-capture ratio of 1.07 versus the S&P 500, and a drawdown capture ratio of 1.01.⁹

A tale of two rallies: lessons from the 1990s

There is no denying that markets appear somewhat stretched at this point, but we believe ambitious valuations following a strong rally are not in themselves a sell signal. While talk of bubble risks is understandable, we feel it remains premature. Historical precedents abound, but one frequently—and, in our view, incorrectly—invoked comparison is the dot-com bubble. Many of that era’s most hyped companies lacked both profitability and cash flow, in stark contrast to many of today’s dominant firms in the artificial intelligence (AI) ecosystem. Some late-1990s players did enjoy monopoly-like positions, but their advantages were largely hardware-based and easily commoditized. This led to rapid margin erosion and intensifying competition even as the total addressable market expanded with internet adoption. By contrast, today’s leaders often operate within systemic rather than layer-specific monopolies, which may help preserve their pricing power—and margins—for considerably longer.

We also believe the timelines in the above comparison are mismatched. To be clear, the mid- to late-1990s bear notable similarities to the 2020s. In 1994, for example, much like in 2022, the Fed embarked on an aggressive rate-hiking cycle that triggered a spike in equity volatility. Both years saw fixed income markets reeling—1994 is, in fact, remembered as the year of the “Great Bond Massacre.” The release of the Netscape browser in December 1994 is widely regarded as the “big bang” that mainstreamed the internet, while 2022 marked the beginning of AI’s mass adoption with the arrival of ChatGPT.