Introduction: Momentum Remains—But Uncertainty Is Growing

Since the market bottom in October 2022, U.S. equities have staged an impressive rebound, gaining over 35% in just 2.6 years. Both the S&P 500 and Nasdaq have returned to all-time highs, and investor sentiment has largely shifted from fear to cautious optimism. However, as markets enter the third year of this current bull market, historical data suggests that turbulence often reappears at this stage—raising the question: is this merely a healthy pause, or the start of something more serious?

A newly released chart from Carson Investment Research, dated June 10, 2025, compares seven bull markets over the last 50 years that lasted more than two years. The conclusion is clear: the third year of a bull run tends to be choppy—and that should prompt investors to recalibrate their expectations.

The Seven Major Bull Markets: Context From Five Decades of Data

Carson’s analysis tracks seven significant bull markets that extended beyond two years—each occurring in a different macroeconomic environment. Here are the key periods:

Oct 1974 – Nov 1980: 6.2 years, over 120% gains

Aug 1982 – Aug 1987: 5.0 years, over 230% gains

Dec 1987 – Mar 2000: 12.3 years, nearly 600% gains

Oct 2002 – Oct 2007: 5.0 years, ~100% gains

Mar 2009 – Feb 2020: 11.0 years, over 400% gains

Oct 2022 – Present: 2.6 years so far, ~35% gains

2020–2022 period is excluded as it was interrupted by the COVID-19 correction.

The chart reveals a notable pattern: despite vastly different economic backdrops, each third year of a bull market often coincides with elevated volatility, lower returns, or sideways consolidation. In other words, even strong uptrends pause for breath.

Why the Third Year Becomes a Challenge

The third year of a bull market presents a unique set of challenges that are both technical and psychological:

Monetary headwinds: By year three, central banks—particularly the Federal Reserve—tend to have shifted to a tighter monetary stance, often raising interest rates to temper inflation.

Valuation pressures: Earnings growth may start to decelerate while valuations stretch, limiting the upside potential of indexes as a whole.

Sector divergence: Mega-cap tech and growth stocks may continue to outperform, while cyclicals and small caps lag—creating an illusion of strength that doesn’t represent the broader market.

The current market environment reflects many of these conditions. Fed funds rates remain elevated, economic growth is moderating, and investor behavior has become more defensive. The result: higher day-to-day volatility, increased sector rotation, and declining market breadth—all classic markers of a “messy” third year.

Lessons from the 2009–2020 Bull Run: A Blueprint for What Comes Next?

The most recent long bull run (2009–2020) offers critical lessons. In its third year—2011—markets experienced a sharp correction of over 15%, driven by U.S. credit rating downgrades and the European debt crisis. However, that dip proved temporary, and the bull market ultimately ran for another eight years.

This is a key historical reminder: volatility in year three does not signal the end. Instead, it often reflects a transition phase—from rapid post-crisis recovery to longer-term, fundamentals-driven growth. If today’s market is following a similar trajectory, the recent choppiness could represent a constructive consolidation rather than a turning point.

How Should Investors Respond?

While no two bull markets are identical, the third year repeatedly emerges as a time for strategic shifts in portfolio management:

Don’t chase the index – Broader index performance can be misleading in year three. Active management, sector rotation, and smart beta strategies may offer superior results.

Focus on quality – Companies with robust free cash flow, clean balance sheets, and defensible business models tend to outperform when volatility picks up.

Stay diversified – With uncertainty increasing, diversification across sectors, geographies, and asset classes becomes even more critical.

Reassess risk – This is an optimal time to review portfolio drawdown scenarios, hedge exposures if needed, and prepare for less linear market behavior.

Conclusion: Crossroads or Continuation?

As of mid-2025, the bull market that began in October 2022 remains intact, but faces its toughest test yet. The past teaches us that the third year is rarely easy—but it is not necessarily ominous. Historical patterns suggest that turbulence is normal, and often paves the way for the next leg higher.

Ultimately, whether this period turns out to be a temporary reset or a major reversal will depend on several factors: central bank policy, earnings resilience, and geopolitical risk. But for disciplined investors with a long-term mindset, these choppy phases are not something to fear—they’re moments to reassess, rebalance, and refocus.