The Most Hated Bull Market in History

The S&P 500 closed at a new high Thursday, extending a rally that has left much of Wall Street skeptical, confused, or outright short. The index is up 18% since the start of the year, and the chorus of doubt has only grown louder with each record.

"This is the most hated bull market I have ever seen," said David Kostin, Goldman Sachs' chief U.S. equity strategist, in a note to clients this week. "Every 500-point move in the S&P is met with fresh questions about valuation, concentration risk, and the sustainability of earnings."

The skepticism has a basis. The top 10 stocks in the index now account for 35% of its total market capitalization, a concentration not seen since the dot-com peak. The forward P/E multiple has expanded to 21.5x, roughly two standard deviations above its 10-year average. Bond yields are elevated, the Fed has not cut rates, and the geopolitical calendar is thick with risks.

And yet the market keeps grinding higher.

The driving force, as Kostin frames it, is not exuberance. It is the absence of alternatives. Cash yields about 5% in money markets. The 10-year Treasury offers 4.4%. Equities, for all their headline risk, still deliver a forward earnings yield of roughly 4.6% with embedded growth optionality. For institutional allocators sitting on record cash positions – money market assets hit $6.4 trillion in July – the calculus is tilting back toward stocks by default.

"It is not that fund managers are wildly bullish on the economy," said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in an interview. "It is that the opportunity set in fixed income is not compelling enough to draw them out of equities at the pace the bears expect."

The rotation has been narrow but persistent. The Magnificent Seven – Apple, Microsoft, NVIDIA, Alphabet, Amazon, Meta, and Tesla – have produced roughly 60% of the index's year-to-date gain. That is starting to broaden. Financials, industrials, and energy have all outperformed the S&P 500 over the past three months.

"The broadening is real," Shalett said. "Small caps are finally participating. Value is getting a bid. The story is shifting from multiple expansion to earnings delivery, and that is a healthier foundation."

The risk remains that good news has already been priced. Second-quarter earnings beat estimates by an average of 4.2%, roughly in line with the historical norm. Forward guidance has been conservative. Companies are citing elevated input costs, slower consumer spending, and uncertainty around the U.S. election.

"The numbers are fine, the tone is cautious," Kostin wrote. "We are not getting upgrades. We are getting guidance that keeps the bar low for the second half."

What would break the rally? The most discussed scenario is a recession that forces earnings estimates sharply lower. GDP tracking models from the Atlanta Fed show growth running at 2.8% in the third quarter, well above recession territory. The labor market is showing cracks. The unemployment rate has ticked up to 4.3%, triggering the Sahm Rule recession indicator.

"The Sahm Rule has a perfect record since the 1970s," said Claudia Sahm, the former Fed economist who developed the indicator, in a recent post. "That does not mean we are in a recession today. It means the risk is elevated and warrants attention."

The Fed meets next on September 17-18. Markets are pricing a 70% probability of a quarter-point rate cut. If the Fed delivers and signals more cuts to come, the bond market would rally, lowering the discount rate on future earnings and supporting equity multiples. If the Fed holds, the disappointment could trigger a 5-8% pullback, several traders said.

The bull case is not blind optimism. It is a slow, grinding recognition that cash yields, while decent, do not compound the way equities do when the cycle extends. The bear case is a recession that has not yet arrived whose warning lights are blinking.

Both arguments carry weight. The market, for now, is choosing the path that requires the least courage: staying long and waiting for evidence that the other side is right.