Bull Market Just Completed Year 4. Will It Finish Year 5? Here's What History Says.

The S&P 500 (SNPINDEX: ^GSPC) bull market is entering its fifth year. While many investors may be worried that the current bull market may be closer to the end than the beginning, it's important to remember that the stock market doesn't crash just because it's gone up for too long. Bull markets don't die of old age; they end because of one or more significant market catalysts.

If you look at history, you'll find a market that's had a bull run of four years can keep going for a lot longer. In fact, five of the six bull markets that have lasted at least four years since the S&P index expanded to 500 companies in 1957 reached their fifth birthdays. Here's why history could repeat itself in 2027.

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What happens when a bull market turns four years old?

The stock market is always forward-looking. What happened over the past four years is only consequential to the extent that it got us to where we are today. Today's stock prices reflect how much investors are willing to pay for the future earnings of the businesses they represent. So, nothing discernible happens when a bull market turns four.

Here's how the last six bull markets reaching four years old performed in their fifth year and beyond.

Table source: Author. Data source: Yardeni Research, YCharts.

As you can see, there have been several bull markets that have lasted well beyond their fourth birthday. And while five of six made it to year five, only half of the four-year-old bull markets made it much beyond their fifth birthdays.

Will this bull market reach year five?

Still, if history is anything to go by, the S&P 500 will probably continue to climb higher over the next year. That said, acknowledging history is one thing, acknowledging the present state of the market is another. While there are reasons to think the market will struggle to keep climbing, overall, it looks healthy and can continue its bull run.

Rising interest rates could be a catalyst that breaks the bull run. That's especially true considering the biggest driver of the market over the last four years has been artificial intelligence (AI) stocks, many of which have become extremely capital-intensive as they build out new data centers. A rising cost of capital could weigh on their results, especially if there's a rerating in how much compute AI developers actually need. That's further exacerbated by the fact that the largest tech stocks account for a large share of the overall index.

However, the largest hyperscalers are their own customers, which gives them valuable insight into the actual returns from spending on new data centers. As long as the cost of capital remains below their projected returns on capital by a wide margin, even a slowdown in spending probably won't send stocks crashing.

Meanwhile, analysts expect earnings to keep climbing quickly for years to come. Analysts expect the S&P 500 aggregate earnings to grow more than 27% per year over the next five years. That's pushed the index's forward P/E ratio down to 19.1 even as stocks rise. That valuation sits below the five-year average for the index and in line with the 10-year average. In other words, based on recent history and future expectations, stocks aren't too expensive to keep climbing higher.

Much of that earnings growth is tied to the big tech companies continuing to produce excellent results. Meanwhile, expectations for other sectors have fallen. That opens the potential for other stocks to pick up the slack if tech falls short of high expectations. Markets typically see broader participation before a bull market ends, and so far we've only seen a few spurts of non-tech leadership. Until we see a broader rise in stocks, investors should expect some upside to remain in the index.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.