Why the bull market has kept defying the bears

The bull market has remained resilient because strong nominal growth, earnings, and private-sector balance sheets have outweighed higher rates and energy prices.

• Since the S&P 500 reached a record on August 13, oil rose by more than $20 per barrel, the 2-year Treasury yield increased by roughly 60 basis points, the 10-year yield by about 40 basis points, and central banks tightened policy, yet the index was only 2.07% below its high.
• Markets had previously priced as many as three Fed cuts, while the 2-year Treasury yield fell to 3.38% in late February and later rose to about 4.73%, a 135-basis-point increase from its low.
• Despite the repricing, credit spreads stayed contained, economic activity continued expanding, and healthy consumer balance sheets plus corporations' longer-term refinancing reduced the immediate strain from higher rates.
• Higher energy prices remain a risk, but the economy is less energy-intensive and US households were spending a historically small share of disposable income on gasoline before the latest shock.
• Around 15 million barrels per day had been moving through the Strait of Hormuz; although the Saudi East-West Pipeline bombing increased supply concerns, repairs were expected to take days or weeks, while retail sales, manufacturing, and earnings remained firm.

Takeaway: The author sees the market as climbing a wall of worry rather than showing fragility, but acknowledges that persistently high energy prices or further rate increases could eventually slow growth.