Happy 13th birthday to the Great Secular Bull

While it is important to have the appropriate framework for day-to-day investment decisions, it is particularly crucial to know the broad direction of travel. For equities, difference in bearing can be stark. Are the markets in a long-term uptrend, i.e., a secular bull, or a long-term downtrend, i.e. a secular bear? If the former buy dips, don’t sell rallies; if the latter do the opposite.

At Federated Hermes, we have believed we are in a generational secular bull market since the early stages of US equities’ recovery from the 2008-09 Great Financial Crisis (GFC), which marked the final phase of a 13-year bear market lasting from 1999 until the breakthrough to new highs in 2013. This note we wrote in June 2012 was particularly prescient:

Has the rally off the March 2009 lows on the S&P 500 simply been a bounce in a long-term secular bear market, which will eventually revisit or even take out those lows [the prevailing consensus at this time], or are we rather in a choppy and always worrying long-term up move that will later be declared the beginning of one of the great secular bull markets of the 21st century? Only in hindsight will we know. But as we wrote in the dreary days of August 2011, we believe we may very well be in a ‘new secular bull market … that will take out the previous double top in the S&P (1,550) sometime in late 2012 or 2013.’

Approximately a year later, the market did indeed crack through the old 1999 and 2007 double top, and the present Great Secular Bull was born. So, as we celebrate its 13th Birthday this quarter, it seems appropriate to give him a full health checkup, as well as to update our Bubble Monitor for signs that the Bull could morph into a Bear. The good news is that, while risks abound and a short-term correction is possible (and even likely), the market seems firmly grounded in the forces that drive secular bulls. The present bull market may be advancing to middle age, but a long-lasting downturn appears far off.

Some definitions

Market commentators often refer to bull and bear markets within shorter time horizons than most investors should consider when managing their investment portfolios. In the common parlance, a bull market is in the process of regularly making new six-month highs, even if the run is simply a massive bounce within a longer downtrend. Similarly, most commentators call a bear market one that has declined at least 20% from a recent high, even when the correction is happening within a bigger uptrend. These definitions, which we refer to as “cyclical” bull and bear markets, might be helpful to day traders but are often counter-indicators of the intermediate-term trend on which longer-term investors should focus.

In contrast, we find it more helpful for investors with a longer time horizon to look for larger trends. In our view, a secular bull market is one that regularly hits all-time highs (not just short term highs), driven by improving fundamentals, and is likely to continue to do so. Under this definition, the early years out of a major bear market pullback, such as the burst of the Dot-com bubble or the GFC, were not yet new bull markets. Why? Because in both cases, none of the interim S&P highs surpassed the 1,565 reached in December 1999.

Likewise, a secular bear market is trapped on a daily basis somewhere between the previous record high and a new low. Under this definition, the period from December 1999 to June 2013 was a secular bear market. It capped out at the double top it reached in late 1999 and late 2007 and dipped to lows in 2001, 2003, 2008, 2009 and 2010.

With this classification, there have only been three Great Secular Bears in the last 100 years: from 1929 to 1954, accompanied by the Great Depression; from 1973 to 1982, exacerbated by the oil crisis, stagflation and the Savings & Loan crisis; and from 2000 to 2013, tied to the burst of the Dot-com/real estate bubbles and the banking system crisis. Similarly, there have been only three Great Secular Bulls: the post-WWII boom from 1954 to 1973; the Reagan reforms/Dot.com bull market from 1982 to 1999; and the post-GFC/fourth Industrial Revolution boom ongoing since 2013. The three secular bear markets averaged more than 12 years in length and S&P annual returns of 0%; the two previous secular bull markets each lasted 18-and-a-half years and generated annual S&P price returns of nearly 12%.

The conditions needed to launch and feed a secular bull

1. A secular bear that terrifies a generation of investors, policymakers and consumers Every great secular bull is born out of trauma. The 1999–2013 secular bear market delivered precisely that: two 50% drawdowns in the S&P (the Dot-com collapse from 2000–2002 and the Global Financial Crisis (GFC) from 2007–2009) and a “lost decade” where investors learned — painfully — that equities can go nowhere for years.

The scars left by that period reshaped behavior across the system. Policymakers became aggressively proactive, the Federal Reserve adopted near-zero rates, quantitative easing and a willingness to intervene early and decisively. Regulators tightened the banking system with post-crisis reforms that forced banks to hold materially more capital and reduce leverage. Investors internalized risk aversion, leading to structurally higher equity risk premia at the start of the current bull. Importantly, it has been characterized by frequent but contained corrections rather than systemic collapses. Prior secular bull markets (e.g., within 1982–2000) also saw numerous corrections of 10–20%, but these were typically shorter-lived and less synchronized with financial system stress. The current cycle has exhibited a similar pattern: multiple drawdowns (2015–16, and the fourth quarters of 2018, 2020 and 2022), but each met with stabilization rather than morphing into multi-year bear market conditions.

In short, the fear instilled by the prior bear laid the groundwork for prudence, resilience and policy reflexes that have helped extend the present bull.

2. A technological change that alters the course of growth and profits Secular bulls are not simply liquidity events — they are powered by earnings transformations. Each sustained upswing has coincided with a technological revolution that redefines productivity and profit pools. For example, the 1982–2000 bull market coincided with the rise of personal computing, enterprise software and early internet adoption that drove margin expansion and new business models. Meanwhile the current bull has met the implementation of the cloud and AI.

What distinguishes this cycle is the stacking of innovations rather than reliance on a single dominant theme. One could argue we are on the precipice of a third structural driver: outer space. Declining launch costs, the commercialization of low-earth orbit, satellite networks and defense-related investment are opening new domains of economic activity. While still early relative to AI, space may evolve into corporate spending and innovation cycles, something previous bulls did not anticipate or fully incorporate.

Together, these forces expand the profit frontier — arguably the most critical ingredient for sustaining a multi-decade bull market.

3. Mini-bubbles and corrections that prevent excess from becoming systemic Healthy secular bulls are not linear — they self-regulate through rotations and mini-bubbles. Rather than one monolithic speculative excess, capital cycles through sectors, allowing valuations to reset locally without collapsing the broader market.

The current bull has displayed this dynamic repeatedly: Software as a Service (SaaS) and high-growth tech (2020–2021), commercial real estate stress (2022–2024), and even the rise of nonfungible tokens (NFTs) (2021-2022). These episodes mirror patterns seen in prior bulls, in which periodic corrections — often 10–20% in specific sectors — served to relieve the pressure of excess speculation.

What is notable today is the rotational nature of leadership. Markets have alternated between growth and value, cyclicals and defensives, mega-cap tech and broader participation. This rotation has allowed the index-level advance to persist while preventing a singular, system-wide valuation bubble from forming prematurely. In effect, volatility within the system has acted as a stabilizer rather than a destabilizer.

4. Unattractive alternatives Equities flourish when alternatives fail to compete — a dynamic often summarized as TINA (There Is No Alternative). In the early years of the current bull, near-zero interest rates and suppressed bond yields left investors with little choice but to allocate toward equities. This condition drove multiple expansion and sustained flows into risk assets.

The landscape has shifted recently but the underlying dynamic may be reasserting itself. Since 2022, fixed income has delivered historically poor returns due to rising rates, challenging its role as a reliable ballast. Private equity is facing elevated entry multiples, higher financing costs and slower exit environments, all of which have tempered return expectations. If these asset classes do not deliver on a risk-adjusted basis, capital is likely to gravitate back toward public equities. Thus, even as the TINA narrative evolves, the core condition — relative attractiveness — may once again favor equities.

5. A supportive policy backdrop Finally, no modern secular bull has unfolded without a responsive and supportive policy regime. What has distinguished the post-2013 environment is the speed and scale of intervention when systemic risks emerge. Key examples of this include the eurozone sovereign crisis (2011–2012), the Covid-19 shock (2020) and the regional banking and commercial real estate stress (2023–2024). In each instance the pattern is clear: policymakers have repeatedly shown a willingness to “break the glass” early, stepping in before localized stress metastasizes into systemic crisis.

This has important implications for investor behavior. The perceived policy backstop reduces tail-risk fears, supports valuation multiples and reinforces the durability of the cycle.

The conditions that accompany a market bubble that could lead to a bear market

Ironically, most bull markets eventually sow the seeds of their own demise. The trend has been that solid fundamental conditions and strong profit outlooks attract capital, which is eventually misallocated. A policy error or unexpected outside influence then causes a sudden change in the outlook, sparking a run for the exits that leads to a collapse. The banking system gets caught up in the conflagration and freezes, sending the economy into reverse, as the entire economy and stock markets are caught in a self-reinforcing downward spiral.

Some time ago (in The Bull, the Bear and the Bubble), recognizing the risk that the present bull market could eventually follow the same path, causing it to morph into a bear, Federated Hermes developed a Bubble Monitor to provide us with an early warning signal. Here’s the current state:

1. Excessive liquidity: Shift to Yellow from Green

Many bubbles inflate and pop due to excessive liquidity, often driven by loose monetary policy. While we do not currently have the loose policy that led to the rise of NFTs in 2022 (remember those pictures of rocks?), we are beginning to see symptoms of growing liquidity in the system: private debt, mega IPOs, and large M&A deals, to name a few. Some might think that would be enough to push this indicator into the red, but with positive real interest rates and the new Federal Reserve chair on high alert, we feel it is appropriate to color this yellow.

2. Misallocation of capital: Maintain Yellow

At the start of the year, analysts and pundits expected that the big five hyperscalers would spend a staggering $400 billion on AI in 2026. That estimate now seems tame compared to the current expectations of nearly $700 billion. The numbers are eye-popping and growing to be a percentage of GDP higher than the fiber optic or railroad buildouts of the past. The difference is this time it is largely fueled by operating cash flow, and the early spenders on AI have already begun to report revenues from their AI investments.

3. Excessive debt: Maintain Green

With recent massive debt deals it is hard to imagine we should keep this indicator green, but ultimately market conditions deem it appropriate. Current debt levels continue to stay at relatively low levels, with credit spreads recently returning to all-time tights. While there are anecdotes of a few companies having issues with corporate debt, we feel they are largely outliers.

4. Policy error: Maintain Green

With oil prices jumping over $100 per barrel and back again, the Fed has largely hit the pause button on monetary policy. New Chair Kevin Warsh looks to be making his mark by revamping several key variables in the Fed’s toolkit. We believe this could result in a more forward-thinking Federal Open Market Committee, rather than one staring in the rearview mirror. A more forward looking Fed seems less likely to commit the kind of policy error that could upend the present bull market.

5. Fraud: Shift to Green from Yellow

Last year the phrase “cockroaches” took center stage as there were  two well-publicized fraudulent private credit cases in the auto space. Since there, there have been very few reports of rampant fraud in the markets, leading us to upgrade this indicator.

6. Excessive valuations: Shift to Yellow from Green

Market valuations are high by historical standards, though P/E multiples remain well below the scary peaks last seen during the Dot.com bubble. Moreover, companies are quickly growing into these lofty expectations. Take, for example, the first quarter earnings season that just concluded during which every sector beat expectations, and eight of 11 saw double-digit growth in earnings year-over-year. While the absolute level of multiples deserves a nod, we believe that they remain well below “Code Red” for now.    

Conclusion: We are still solidly in bull market territory

Reviewing all of the above, it is our view that, while yet another near term correction might be upon us and is overdue, equities remain solidly in a secular bull market environment. Extraordinary margin and profitability gains are driving, and funding, the investment cycle. Profits are exploding to the upside and for now appear to be on a solid course. Technological change and innovation are multiplying, with a series of unexpected and unprecedented revolutionary technologies transforming how humanity lives and grows. First the internet, then the cloud, then AI and perhaps next, space. This pace of change and innovation is without precedent in previous market cycles. Overlaying all this is the still-fresh memory of the near-death experience of 2008-09. Those nightmares still guide the conscious and unconscious actions of policymakers, corporate financial officers, investors and consumers – and drove the regulations that followed. Collectively, these actors are keeping valuations grounded and investments guarded, isolating the bubbles to subsectors of the market that have rotated around sequentially and prevented a broad-based bubble that would be more dangerous.

Net net, as the Great Secular Bull enters its 14th year, it appears quite healthy for now and seems likely to carry us at least to our 2027 target of 9,000 on the S&P, if not beyond. So, Happy Birthday to the Great Secular Bull! May it have many more years to come!

Read more about our views and positioning at Capital Markets.