Three Reasons the Bull Market Has More Room
Six straight quarters of double-digit earnings growth, real yields that make bonds work again, and a Fed leaning toward cuts. The bull case in data.
The consensus narrative for most of the past 18 months has been some version of “this can’t last.” Valuations are stretched. The yield curve was inverted. Geopolitical risk is elevated. Consumer sentiment is weak. Each of these concerns is real. None of them, in our view, is sufficient to end a bull market backed by accelerating earnings, functional bond markets, and a central bank that is more likely to ease than tighten from here.
We believe the S&P 500 bull market that began in October 2022 has more room to run. Not because risks do not exist, but because the three fundamental pillars of equity appreciation, earnings growth, interest rate support, and monetary policy positioning, are all aligned in the same direction for the first time since early 2021.
Forward-looking statement: The analysis below contains forward-looking statements reflecting our current assessment of market conditions. Actual results may differ materially from any scenario described. Market performance depends on factors including but not limited to Federal Reserve policy, corporate earnings, geopolitical developments, and macroeconomic trends. Past performance is not indicative of future results. We present probability-weighted scenarios, but these probabilities are subjective assessments, not statistical certainties.
Reason 1: Earnings Growth Is Not Slowing
S&P 500 companies have now delivered six consecutive quarters of double-digit year-over-year earnings growth. Q1 2026 is tracking to extend that streak to seven. According to FactSet’s Earnings Insight report, the blended earnings growth rate for Q1 2026 is approximately 12.4%, with 78% of reporting companies beating estimates.
This is not a story about a single sector. While technology and communication services continue to lead, seven of eleven S&P 500 sectors are posting positive year-over-year earnings growth. The breadth matters because narrow leadership is fragile, and broad earnings expansion is structurally bullish.
The transmission channel from earnings to equity prices is direct. Over any rolling 10-year period, the correlation between S&P 500 earnings growth and price returns exceeds 0.90. In the short term, multiples dominate. Over the medium term, earnings growth is the engine. Six quarters of double-digit growth is not a fluke. It is a cycle.
| Quarter | S&P 500 YoY EPS Growth | Beat Rate |
|---|---|---|
| Q3 2024 | +10.2% | 75% |
| Q4 2024 | +13.1% | 76% |
| Q1 2025 | +12.8% | 77% |
| Q2 2025 | +11.6% | 76% |
| Q3 2025 | +11.2% | 79% |
| Q4 2025 | +12.5% | 77% |
| Q1 2026 (tracking) | +12.4% | 78% |
Source: FactSet Earnings Insight, data as of April 18, 2026.
Reason 2: Real Yields Make Bonds Work Again
The bond market is no longer fighting the equity market. It is supporting it. The 10-year Treasury yield sits near 4.25% as of mid-April 2026. With core PCE inflation at approximately 2.5%, the real yield, the return after inflation, is roughly 1.75%.
That is the highest sustained real yield environment since 2007. And it matters for equities through a counterintuitive mechanism: when bonds provide genuine income, they attract capital on their own merits rather than forcing yield-seeking investors into equities out of desperation. This creates a healthier risk asset market because the buyers remaining in equities are there for growth, not because they have nowhere else to go.
The cross-asset transmission works like this: positive real yields attract fixed income allocations from pension funds, insurance companies, and sovereign wealth funds. That demand puts a ceiling on how high yields can go, which in turn puts a floor under equity valuations by capping the discount rate. The equity risk premium, the extra return stocks offer over risk-free bonds, has compressed but remains positive. In our view, that compression signals normalization, not danger.
The contrast with 2022 is instructive. In 2022, the Fed was raising rates at the fastest pace in four decades, and the stock-bond correlation flipped positive, destroying the diversification benefit that makes balanced portfolios work. Today, with the Fed at or near terminal rate, the correlation has returned to its historical negative pattern. Stocks and bonds are diversifying each other again.
Reason 3: The Fed’s Next Move Is More Likely a Cut
The Federal Reserve’s Summary of Economic Projections from the March 2026 FOMC meeting shows a median dot plot implying one to two rate cuts before year-end. Fed Chair Powell’s March press conference language was deliberate: the committee sees the balance of risks shifting toward growth concerns rather than inflation persistence.
This does not mean a cut is imminent or guaranteed. But the directional bias matters enormously for forward equity pricing. When the market assigns a higher probability to the next rate move being down rather than up, it removes a key overhang from equity valuations. Rate hikes compress multiples by raising the discount rate on future earnings. The absence of that compression, even without an actual cut, is supportive.
The transmission from monetary policy to equities runs through multiple channels: lower short-term rates reduce corporate borrowing costs, support housing activity, ease consumer credit conditions, and reduce the attractiveness of money market funds relative to risk assets. We believe the market is correctly pricing in a Fed that is done tightening, and that this positioning supports equity prices at current levels and above.
The Counterargument: What Could Go Wrong
The bear case is real, and ignoring it would be analytically dishonest. Three risks deserve attention:
Valuation. The S&P 500 trades at roughly 21x forward earnings, above the 25-year average of approximately 16.5x. Elevated multiples do not cause corrections, but they reduce the margin of safety. A negative earnings surprise or geopolitical shock would hit harder at 21x than at 16x.
Concentration. The top 10 S&P 500 stocks represent approximately 37% of the index, well above historical norms. If the mega-cap leadership rotation that began in late 2025 accelerates, the cap-weighted index could decline even as the median stock holds up.
Geopolitical tail risk. The Strait of Hormuz situation remains unresolved, and any escalation in Middle East tensions could spike oil prices and reignite inflation concerns, forcing the Fed to delay or reverse its easing bias.
The Scenario Table
| Scenario | Probability | S&P 500 Path (12 Months) | 10-Year Yield | Catalyst |
|---|---|---|---|---|
| Base: Soft landing with earnings growth | 50% | +8% to +12% | 3.90% to 4.30% | Earnings stay double-digit, Fed cuts 1-2x, inflation drifts to 2.3% |
| Bull: Re-acceleration | 20% | +15% to +20% | 3.50% to 3.90% | GDP surprises higher, AI productivity gains materialize, Fed cuts 3x |
| Bear: Sticky inflation, no cuts | 20% | -5% to -10% | 4.50% to 4.80% | Core PCE rebounds above 3%, Fed holds, earnings growth decelerates to single digits |
| Tail: Recession | 10% | -15% to -25% | 3.00% to 3.50% | Credit event, geopolitical shock, or consumer spending collapse triggers contraction |
Our thesis aligns with the base case. We assign 50% probability to continued earnings-driven appreciation, supported by stable rates and a patient Fed. The bull and bear scenarios are roughly equally weighted at 20% each. The recession tail is low probability but high impact.
What Would Change Our View
Three specific triggers would cause us to reassign probabilities:
- Core PCE printing above 3.0% for two consecutive months. That would signal inflation re-acceleration and likely push the Fed toward a hawkish hold or hike, moving probability from the base case to the bear case.
- S&P 500 blended earnings growth falling below 5% for two consecutive quarters. The earnings engine is the foundation of the bull case. Single-digit deceleration weakens it. Negative growth kills it.
- The 10-year Treasury yield breaching 5.0%. That level, in our view, is where the discount rate effect overwhelms earnings growth and begins compressing multiples aggressively.
We believe the evidence today supports staying invested and maintaining equity allocations in line with long-term targets. The time to reduce equity exposure is when the data, not the narrative, turns. As of April 18, 2026, the data has not turned.
Ferrante Capital and/or its clients may hold positions in S&P 500 index funds, U.S. Treasury securities, and/or other broad equity and fixed income instruments discussed in this article. This content is for informational purposes and does not constitute a recommendation to buy, sell, or hold any security. Past performance is not indicative of future results. Bond investing involves interest rate risk, credit risk, and market risk. Bond prices may decline as interest rates rise. Please consult a qualified financial professional before making investment decisions.
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Ferrante Capital LLC is a registered investment adviser. This content is for educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
Forward-looking statements reflect current views and are subject to change without notice and to material risk. Past performance does not guarantee future results.
Consult a qualified financial professional regarding your individual situation.
Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal.
FC and its principals may hold positions in securities or asset classes discussed in this article. This analysis is for educational purposes only and does not constitute a recommendation to buy, sell, or hold any security.
Forward-looking statements reflect Ferrante Capital’s current analysis and involve assumptions and estimates. Actual results may differ materially. Past performance is not indicative of future results.
Please consult a qualified financial professional before making investment decisions.
