The bull market in US stocks celebrates its third anniversary! The "technology solo" show is difficult to sustain, and US stocks urgently need to "expand the circle" to survive.

The current bull market in the US stock market will celebrate its third anniversary on Sunday, but if history is any indication, it needs to quickly expand its upward range to maintain momentum. Data shows that since the current bull market began on October 12, 2022, the S&P 500 index has risen by 83%, with a market value increase of about $28 trillion. Before the sell-off on last Friday due to President Trump's tariff threats, the index had risen by as much as 88%. According to CFRA Research, even after this pullback, the S&P 500 has still risen by 13% in the past 12 months, which is twice the average gain in the third year of a bull market. Since World War II, the US has experienced 13 bull markets, with 7 extending into the fourth year, with an average cumulative gain of 88%. The current bull market has almost achieved this level in just three years, with the S&P 500's price-to-earnings ratio reaching 25 times - the highest level in the third year of any bull market. Sam Stovall, Chief Investment Strategist at CFRA Research and a veteran of Wall Street, said, "I have never seen a situation like this before." Looking at the current situation, the battle between bulls and bears is becoming more intense: Is the US stock market rising too high, too fast? Sam Stovall said, "Given the high valuation multiples, tariff and economic concerns, and the fact that next year is a US midterm election year - which usually means increased volatility due to policy uncertainty, 2026 may be a difficult year for US stocks. However, history indicates that the market has not yet fallen so far off course as to be doomed to failure, it just means that the pace of gains needs to moderate in the future." Some Wall Street professionals are concerned about potential risks. Investors saw this risk last Friday when President Trump's tariff remarks led to the S&P 500's worst single-day performance since April 10. In addition, the market faces uncertainties such as the US government shutdown, the Fed's interest rate path, and the third-quarter earnings season. Louise Goudy Willmering, a partner at Crewe Advisors, said, "Given the rapid rise in the market, if companies release any growth concerns in their earnings reports, this earnings season may cause volatility." Her wealth management company is increasing its holdings of lower-valued international stocks. One key risk of the current US stock market bull market is its significant concentration, driven mainly by tech giants such as NVIDIA Corporation (NVDA.US), which has seen its stock price rise by nearly 150% in the past three years, and Meta Platforms (META.US) which has risen over 450%. However, many stocks have significantly lagged behind. For example, the performance of equal-weighted indexes such as the S&P 500 has lagged behind the S&P 500 index by 21 percentage points since October 2022 - the largest relative lag of equal-weighted indexes at the start of a bull market since the 1990s. Data shows that in the three subsequent bull markets, equal-weighted indexes have outperformed the main index by an average of 24 percentage points by the third year. Jurrien Timmer, Global Macro Director at Fidelity Investments, pointed out that this phenomenon is unusual. Usually, there is broader participation in the early stages of a bull market because the Fed tends to cut interest rates to support the economy. However, this time is the opposite - the Fed raised interest rates in 2022 to curb inflation, resulting in a significant increase in market concentration. Currently, the so-called "seven giants" of the US stock market account for about one-third of the S&P 500 index. However, renowned bull Jim Paulsen believes that very few professional investors expect a bear market to come, as the Fed may intervene once the situation worsens. He expects that market breadth will gradually spread to equal-weighted and small-cap stocks after experiencing three years of excess gains, and there may be some setbacks. Jim Paulsen said, "Don't fight the Fed or the market trend." The risks of the current stage of the cycle are obvious. Going into 2025, the S&P 500 has risen by over 20% for two consecutive years, the first time since the late 1990s. With stock valuations nearing historical highs, some investors are considering whether to reduce their stock holdings. In a sense, this is why last Friday's sell-off due to Trump's tariff remarks occurred - investors took the opportunity to cash in profits and reduce their positions at high levels. Patrick Fruzzetti, Portfolio Manager at Rose Advisors, said, "Now is the time to rebalance your portfolio." He chose to reduce his holdings in the tech sector and buy into lower-valued healthcare stocks. He added, "If you have profited handsomely from large tech stocks in recent years, it is reasonable to now turn to sectors that will benefit from rate cuts." However, the bull market still has historical data to support it. CFRA data shows that since World War II, bull markets have lasted an average of 4.6 years, with the S&P 500 index averaging a cumulative return of about 157%. Therefore, with the current bull market only three years old and a return of 83%, there is theoretically still considerable room for further gains, providing opportunities for sectors outside of the tech giants. Jurrien Timmer said, "There are currently no signs that the stock market has entered dangerous territory. The bigger risk is that if yields rise back to 5%, valuations may be forced to reset, and if the artificial intelligence boom turns into a bubble, it will trigger a major sell-off. Therefore, from now on, it is crucial to expand market participation."