Here's the Average Stock Market Return During a Bull Market

The S&P 500 (^GSPC 1.02%) is one of three major U.S. financial indexes, but it often serves as the primary benchmark for the U.S. stock market. The reason for that is simple: The S&P 500 is more diversified than the Dow Jones Industrial Average and the Nasdaq Composite, and it includes about 80% of U.S. stocks as measured by market capitalization.

The S&P 500 reached a record high in Jan. 2024 for the first time in two years, removing any doubts that the index has entered a bull market. The two main conditions for a bull market include: (1) The index has advanced at least 20% from its bear market low, and (2) the index has reached a new all-time high.

To be clear, a bull market begins when the S&P 500 hits a bottom during the preceding bear market. For instance, the S&P 500 reached its bear market low on Oct. 12, 2022, meaning the current bull market began on that day, but it didn't satisfy both conditions until the index reached a new high on Jan. 19, 2024.

Read on to see how the S&P 500 typically performs during a bull market.

The average S&P 500 return during a bull market

The S&P 500 has barreled through 10 bull markets since its inception in Mar. 1957. The chart below details each event and shows the average return and duration.

Data source: Yardeni Research. Note: All percentages and averages have been rounded to the nearest whole number.

As shown above, the S&P 500 returned an average of 184% during past bull markets, and the index realized those returns over an average of 1,964 days, or roughly 64 months. We can apply that information to the current situation to make an educated guess about the future.

Remember, the current bull market began about 17 months ago on Oct. 12, 2022. The S&P 500 has advanced 43% since that date. As of today, the historical average tells us the index could rise another 99% over the next 47 months. Put differently, history says the S&P 500 could return about 19% annually during the next four years.

Of course, that assumes the index's performance will align with the historical average, but the odds of that are actually quite slim. Past bull markets have varied greatly in terms of gains and duration. For instance, rampant inflation and elevated unemployment stunted the bull markets that began in 1966 and 1970. Meanwhile, low interest rates and prolonged periods of economic growth sustained the bull markets that began in 1987 and 2009.

Prioritize understandable stocks trading at reasonable prices

Potential upside of 99% over the next 47 months is exciting, but investors should temper their optimism. Stocks are in a new bull market, and the S&P 500 could certainly move much higher in the coming months, but it would be a mistake to treat that outcome as guaranteed.

Certain Wall Street institutions see substantial downside in the S&P 500 due to its elevated valuation and lingering economic uncertainty. For instance, Morgan Stanley expects the index to finish the year around 4,500, implying 12% downside from its current level of 5,100. And JPMorgan Chase has set the index with a year-end target of 4,200, implying 18% downside.

I mention those estimates not to discourage investors but rather to keep them vigilant. Simply throwing money at stocks during a bull market is not a good strategy. Investors must research companies and consider valuation before purchasing shares, and they should never attempt to turn a quick profit in the stock market. Strategies that depend on market timing tend to backfire.

When in doubt, consider this advice from Warren Buffett: "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now," he wrote in his 1996 shareholder letter. "You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."