Over the past two years, the bull market in the U.S. stock market has continued unabated. Despite the fact that interest rates have seen little significant change during this period, investors remain confident in the upward trend of the S&P 500 index. According to a report from DataTrek Research, it is surprising that this uptrend cannot be directly attributed to a decrease in interest rates.

Nicholas Colas, co-founder of DataTrek, pointed out in a report: "Interest rates are almost flat compared to two years ago, which is different from most 'early cycle' bull markets, where rates typically decline." He mentioned that over the past two years, there has been some fluctuation in the yields of 2-year and 10-year U.S. Treasury bonds, but they ultimately returned to their initial levels. Colas specifically referred to the trend in Treasury bond yields from October 12, 2022, to October 14, 2024, which coincides with the two-year anniversary of the current stock market bull run.

According to Dow Jones Market Data, the S&P 500 index set its 46th all-time high on Monday of this week, with a year-to-date gain of 21.9%. However, the index fell back on Tuesday, in contrast to the relatively poor performance of small-cap stocks, with the Russell 2000 index's year-to-date gain at only 11%, significantly lagging behind the S&P 500's performance.

Colas stated: "Typically, small-cap stocks perform the strongest when the market bottoms and rebounds, but that has not been the case this time, due to interest rates remaining at relatively high and stable levels over the past two years." He also noted that over the past two years, the Russell 2000 index has累计 gained 33.2%, trailing the S&P 500's 63.8%.

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He further mentioned that the bull market over the past two years has been "quite atypical," with growth stocks outperforming value stocks, large-cap stocks outpacing small-cap stocks, and the U.S. stock market outperforming other global markets. This anomaly is due to the "early cycle" of this bull market not being accompanied by a reduction in interest rates.

On Tuesday, the yield on the 2-year U.S. Treasury bond rose slightly to 3.955%, while the yield on the 10-year Treasury bond fell to 4.037%. On the same day, the U.S. stock market closed lower, with the Dow Jones Industrial Average and the S&P 500 index each falling nearly 0.8%, and the Nasdaq Composite index falling over 1%.

Nevertheless, the decrease in correlation across various sectors of the S&P 500 index demonstrates that the two-year-old bull market remains robust. Colas explained that typically, sector correlation rises when investors are concerned about macroeconomic issues such as recession or geopolitical uncertainty, as corporate earnings generally decline during economic contractions or slowdowns. The decrease in correlation indicates a more optimistic investor sentiment, but the current average correlation of 0.76 suggests that investor confidence has not yet become overinflated.

Colas concluded: "We are in a 'just right' phase where investors are rationally choosing winners and avoiding potential losers without being overly optimistic. In the U.S. stock market, we favor technology stocks and cyclical stocks, and we believe that small-cap stocks still have the opportunity to catch up in performance."