U.S. Stocks Are Back at Record Highs. Is It Too Late to Chase the Bull Market?

As the S&P 500 (^GSPC -0.50%) hit a new record high on Tuesday, February 19, 2025, investors who have been on the sidelines for the past couple of years may be wondering if it's too late to join the party. After all, the index has surged by more than 46% from its lowest point in late 2022, and the Nasdaq (^IXIC -1.63%) has climbed by around 87% in that time. But is this a temporary rebound or the early days of a new bull market? And if it's the latter, how long can it last?

First, let's address the elephant in the room: bull markets don't last forever. While investor optimism and economic growth drive prolonged uptrends, markets eventually reach a peak before reversing. The key to navigating these cycles is understanding how long bull markets last and recognizing when they are nearing their turning points. Traditional financial media often focuses on historical averages, but a more effective approach involves market cycle analysis, which accounts for price channels, crossover averages, and institutional money flow.

Bull markets unfold in identifiable phases, each driven by different market participants and economic factors. These cycles include:

1. Accumulation Phase: Institutions and smart money begin buying after a bear market, creating the foundation for a new uptrend. This is when stocks and indices trade at depressed levels, and buying occurs quietly, often without much media attention. Early investors who recognize the start of this phase stand to gain significantly as momentum builds.
2. Advancing Phase: Broader participation from retail investors and institutions fuels the strongest gains. Price action accelerates as bullish sentiment spreads, and markets begin trending higher in a sustained fashion. At this stage, the majority of gains occur as buying pressure outweighs selling, pushing stocks to new highs.
3. Maturity Phase: Markets continue higher, but with growing volatility and declining participation from institutional buyers. This is often marked by choppy price action, as some investors take profits while others attempt to ride the final leg of the rally. At this point, divergences start to appear, where leading stocks or sectors may begin to lag the broader indices.
4. Distribution Phase: Large investors begin offloading positions, often into strength, signaling a pending downturn. This phase is characterized by increasing volatility, price swings, and reduced liquidity as institutions quietly sell off their positions while the broader market remains optimistic. Traders who recognize this phase can prepare for an impending market decline.

Recognizing these phases can help traders determine whether a bull market is still strong or nearing its peak. By analyzing long-term and intermediate market cycles, institutional money flow, and price channels, investors can anticipate when a bull market is running out of steam and prepare accordingly.

In the current market environment, the S&P 500 has been surging, with the index up more than 30% since the start of the new bull market. However, some investors remain cautious, given the uncertainty surrounding fiscal stimulus in China, rising geopolitical tensions, and a neck-and-neck presidential election in the United States. Additionally, stretched valuations, recent weakness in the technology sector, and fears of a consumer spending slowdown have some investors on edge.

Despite these concerns, the market has taken these challenges in stride, with the Morningstar US Market Index up more than 21% so far this year. The index is up about 65% since bottoming out in September 2022, driven by a surprisingly strong economy and resilient corporate profits. As long as economic data continues to surprise to the upside, investors can expect the rally to continue.

However, it's essential to remember that bull markets don't last forever, and investors should be prepared for potential pullbacks or market corrections. By understanding the phases of a bull market and keeping an eye on key economic indicators, investors can position themselves to weather any storms that may come their way.

In conclusion, while the S&P 500 has hit new record highs, it's not too late for investors to chase the bull market. However, it's crucial to remain vigilant and prepared for potential market corrections. By understanding the phases of a bull market and keeping an eye on key economic indicators, investors can position themselves to take advantage of any opportunities that may arise. As always, it's essential to do your own research and consider your risk tolerance before making any investment decisions.