The Bull Market Just Turned 2 Years Old. Here's What History Says Happens Next.

The current bull market has come on fast and furious, but at two years old investors may be wondering if it's in danger of running out of gas.

Since hitting a relative low on Oct. 12, 2022, the S&P 500 (^GSPC -0.18%) increased 62.7% over the following two years. The index reached a new all-time high in January this year, about 15 months after the bottom of the bear market, and it's continued climbing quickly since.

Looking to history can provide some valuable insights into the current bull market and how much higher investors can expect stocks to climb.

Here's what history has to say

The 62.7% climb over the past two years is about average for the first two years of a bull market since the end of World War II.

But that average is pulled considerably higher by the most recent bull markets starting in 2009 and 2020. The index nearly doubled within two years of the 2009 bottom, and it more than doubled from the lows of 2020 to the high at the start of 2022.

The median gain in a bull market over the first two years is a bit lower, at 58%. The current bull market represents the fourth-fastest recovery since the end of the war. Of the three that grew faster than the current bull market, only one (2009) saw the index move higher in the third year.

On average, third-year gains for a bull market tend to be muted. The median gain after a two-year bull run is just 2%. Nearly half the time, returns are negative.

Another factor working against the current bull market is that the preceding bear market wasn't tied to a recession. Stocks historically recover quickly from depressed prices caused by a recession, but they don't usually recover as quickly from a non-recession bear market.

Charles Schwab and The Leuthold Group found that the average two-year return from a bull market that wasn't preceded by a recession was just 40.5%, but that includes the 7.5% two-year gain from 1947, which includes a recession bear market during that period. Even so, the current bull market represents the strongest recovery from a non-recession bear market since World War II.

What's more, the average bull market following a recession is 61 months versus just 33 months for one that doesn't follow a recession. That could mean just a few months left before the market hits a relative high.

As such, investors may be in store for a reversion to the mean. The future of the stock market may look a lot more like the average returns as we enter the third year of the bull market. But there are some reasons to remain optimistic.

No signs of slowing down

Historical averages are certainly working against the continuation of the current bull market, but if you take a good look at the market and the economy as a whole, things look a lot brighter. If any point in history looks like today's market, its the mid-90s.

The Federal Reserve managed to pull off a "soft landing" in the 1990s, just as the market saw several years of growth fueled by the internet revolution. Replace "internet" with "artificial intelligence" and you might have a similar story 30 years later. For reference, the S&P 500 returned 34% in 1995, the fifth year of the bull market.

There are a lot of things working in favor of the continuation of the bull market for a third year, if not longer. Despite one bad jobs report in August, employment remains strong. With the Fed set to cut interest rates in 2025, it should provide continued support for the jobs market as long as high inflation doesn't rear its ugly head again. A soft landing looks increasingly likely.

While the bull market has mostly been driven by big tech companies with massive investments in artificial intelligence, there are signs that the market performance is broadening out. More defensive sectors like utilities and consumer staples have seen strong performance in the second year of the bull market as interest rates stabilized. Meanwhile, an accelerating money supply could fuel a broader recovery from mid- and small-cap stocks next year.

It's common to hear the phrase "bull markets don't die of old age." There's usually a catalyst (or two) that brings about the next bear market. Those catalysts are typically unique and unpredictable. If people saw them coming, they wouldn't have such a big impact on the market.

That is to say, things look good right now, and there's no reason not to remain optimistic. But investors should always remain aware that the next bear market could be right around the corner.