Stock market: Bull run hits 4-year mark as AI dominates, but risks loom

The Bull Market at Four

Real talk: the stock market is absolutely vibing right now. October 12 marks exactly four years since the S&P 500 hit its cycle low, kicking off a bull run that’s put up an impressive 117% gain. It’s currently the eighth-longest and sixth-best-performing bull market since World War II, so the energy has been high.

The AI Factor

This entire rally is lowkey held up by one thing: AI. Massive spending on data centers and infrastructure from "hyperscalers" has pushed corporate profits through the roof—we're talking an expected 35% growth in S&P 500 earnings this year. Oxford Economics estimates that roughly one-third of recent US economic growth is tied directly to the AI boom.

Nvidia is the main character here, with its market cap exploding from $286 billion in October 2022 to a staggering $5.8 trillion today. But there’s a catch: the market is getting top-heavy. The top 10 companies now make up about 40% of the S&P 500, up from 28% just a few years ago. That’s a lot of concentration risk if the AI trend ever hits a snag.

The Warning Signs

While the vibes are currently immaculate, pros are sounding the alarm. Higher Federal Reserve interest rates and 10-year Treasury yields hovering around 5.2% are creating some serious headwind.

Anthony Saglimbene, chief market strategist at Ameriprise, notes that the "easy money" from AI has already been made. Going forward, there is going to be "more pressure on especially technology companies to prove that the spending that they’re doing today is actually going to translate into the profits." If the growth doesn't match the hype, the market could take a massive L.

Why it matters

For your portfolio, it’s giving “proceed with caution.” While experts at firms like Edward Jones aren't calling for the end of the bull market just yet, they are advising investors to consider taking some risk off the table as bonds become a more attractive alternative to volatile tech stocks. Markets might stay choppy with midterm elections around the corner, so don't be surprised if things get a bit spicy.