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The 2013–Present AI & Passive Revolution
Thirteen years and counting. Four cyclical bulls, four cyclical bears. The fastest crash in history, the greatest central-bank intervention in history, and an AI boom that is still accelerating.
On March 28, 2013, the S&P 500 finally reclaimed its March 2000 peak at 1,569.19, thirteen years late and in dollars that had lost thirty-six percent of their purchasing power in the interim. The reclaim was quiet. Nobody rang a bell. The Federal Reserve’s balance sheet stood at $3.2 trillion, up from $900 billion before the Global Financial Crisis. The federal funds rate was zero. Mario Draghi had said “whatever it takes” nine months earlier and demonstrated he meant it. Mobile had reached ubiquity; Facebook had IPO’d; Apple had become the largest company in the world. The conditions for a secular bull were in place.
What has followed is the current era, now the fourth-longest American secular bull on record. The index has quadrupled from the March 2013 reclaim. Three cyclical bears have interrupted the arc, each shorter and shallower than the historical average: the China devaluation scare of 2015-16, the Powell tightening overshoot of late 2018, the one-month COVID crash of March 2020. A fourth cyclical bear in 2022 took the index down twenty-five percent on the Fed’s rate-hike response to the first serious American inflation in forty years. And since October 2022, a cyclical bull driven by artificial intelligence has more than doubled the index.
The question for anyone reading this today, in the fourteenth year of a secular bull that has already outrun 2000-2013 and 1966-1982 and is closing on 1949-1966, is whether what we are living through is a late-stage bull about to roll over into the next secular bear, or a technologically-driven multi-decade expansion of the kind that only occurs once a generation. We cannot answer that question yet. We can walk the eight phases that have brought us to it.
Numbered bands mark each cyclical phase; the sections below walk them in order. On measurement: we use the S&P 500 throughout this series rather than the Dow Jones Industrial Average. The S&P samples five hundred companies against the Dow’s thirty; it is the only common ruler that spans every secular era from 1929 to today.
1
▲ CYCLICAL BULL
The Secular Bull Begins
Twenty-six months. Up forty percent. The reclaim of the 2000 peak, the taper tantrum, and the end of QE3.
On March 28, 2013, the S&P 500 closed at 1,569.19, finally reclaiming its March 2000 peak. The reclaim was quiet, as reclaims after thirteen years tend to be. The Federal Reserve’s balance sheet stood at $3.2 trillion and was growing by $85 billion a month under QE3, launched the previous September. The federal funds rate had been at zero for fifty-two months. Mario Draghi’s “whatever it takes” speech at the Global Investment Conference was eight months old and the euro-zone sovereign crisis had receded. The United States was two months into Barack Obama’s second term, Facebook had been public for ten months, and the iPhone 5 had just become the best-selling phone in history.
The first serious test of the new bull came on May 22, 2013. In congressional testimony, Ben Bernanke mentioned the possibility of slowing the pace of asset purchases later in the year. The ten-year Treasury yield jumped from 1.9 percent to 3.0 percent over the next four months, the fastest hundred-basis-point move since 1987. Emerging-market currencies collapsed. The S&P 500 dipped five percent but recovered within six weeks. The “taper tantrum” became the first teaching moment of the Powell-era monetary toolkit: markets had grown dependent on quantitative easing to a degree even the Fed had underestimated. Janet Yellen replaced Bernanke as chair on February 3, 2014, inheriting a taper that would complete on schedule in October 2014 with the balance sheet at $4.5 trillion.
The geopolitical and commodity story diverged from the equity story. On March 18, 2014, Russian forces completed the annexation of Crimea, the first forcible redrawing of European borders since 1945. Western sanctions followed; Russian oil-and-gas exports continued; nobody meaningfully objected to Nord Stream construction. On June 20, 2014, West Texas Intermediate crude oil topped $107, then collapsed to $27 by January 2016 as US fracking supply met Saudi production discipline. The S&P 500 peaked at 2,130.82 on May 21, 2015, up forty percent from the March 2013 reclaim. The Fed was about to make its first rate hike in nine years. The China devaluation that followed in August would be the end of the easy phase.
On August 11, 2015, the People’s Bank of China devalued the yuan 1.9 percent in a single day.
“The reclaim was quiet, as reclaims after thirteen years tend to be.”
2
▼ CYCLICAL BEAR
The China Devaluation Scare
Nine months. Minus fourteen percent. The first real test of the post-GFC bull.
By mid-2015 the economy had been expanding for six years. The Federal Reserve had held the federal funds rate at zero since December 2008 and was finally signaling its intention to raise. Oil, which had traded at $107 in June 2014, had collapsed to $60 by mid-2015 as the US fracking boom met Saudi production discipline, and would reach $26 by January 2016. The S&P 500 had tripled from its 2009 low but was starting to flatten; corporate profit growth had turned negative in Q4 2014 for the first time since the recession.
On August 11, 2015, the People’s Bank of China devalued the yuan by 1.9 percent against the dollar, the largest single-day move in two decades. Within three days the cumulative devaluation reached 4.4 percent. The scale was modest; the signal was not. For twenty years the yuan had been managed as a one-way bet. Chinese capital outflows surged. Emerging-market currencies fell in sympathy. On August 24, the S&P 500 fell 3.9 percent in a single session and Dow futures triggered the overnight circuit breaker for the first time in years. The market was pricing a Chinese hard landing and a developed-market deflation shock on top of an already-collapsing oil complex.
The Federal Reserve blinked. The September 2015 rate hike that had been fully expected was postponed. Mario Draghi at the ECB expanded quantitative easing. The Bank of Japan maintained negative rates. The Fed finally hiked on December 16, 2015, the first increase since June 2006, but moderated its subsequent guidance. Oil bottomed in late January 2016 at $26. On February 11, 2016, the S&P 500 closed at 1,829.08, down fourteen percent from its May 2015 peak, and began a rally that would not fully pause for nearly three years.
In November, the United States would elect a president no one in Washington had believed could win.
“For twenty years the yuan had been managed as a one-way bet. Chinese capital outflows surged.”
3
▲ CYCLICAL BULL
The Trump Rally
Thirty-one months. Sixty percent. Tax cuts, deregulation, and the first serious test of what tariffs do to equity markets.
Donald Trump won the presidency on November 8, 2016, defeating Hillary Clinton by a margin of 304 to 227 in the Electoral College while losing the popular vote by nearly three million. The market opened sharply lower that night as futures traded limit-down on the surprise, then recovered through Wednesday morning and closed up over one percent. Within four weeks the S&P 500 had reached a new all-time high. The Trump trade, as Wall Street labeled it, was built on three expectations: a corporate tax cut, a rollback of Obama-era regulatory expansion, and a thousand-billion-dollar infrastructure program.
Two of the three arrived. On December 22, 2017, Trump signed the Tax Cuts and Jobs Act, which cut the corporate rate from thirty-five percent to twenty-one percent and allowed US multinationals to repatriate approximately $3 trillion in foreign-held earnings at a reduced rate. Corporate buybacks reached a record $800 billion in 2018. The Dow Jones Industrial Average crossed 20,000 on January 25, 2017, then 25,000 on January 4, 2018, both the fastest thousand-point runs in its history. Jerome Powell replaced Janet Yellen as Fed chair on February 5, 2018, the same day the implied-volatility products known as XIV blew up overnight as volatility spiked, taking the Dow down 1,175 points in a session.
The third expectation did not arrive. Infrastructure was never passed. In its place came the first serious tariff war between the United States and China since the 1930s. On March 22, 2018, Trump signed Section 301 tariffs on sixty billion dollars of Chinese imports. Beijing retaliated. Over the next twenty-four months the tariffs would escalate across hundreds of billions of dollars of trade, soybean exports to China would collapse, and the global trade order established after World War II would begin a reorganization that is still underway today. The S&P 500 peaked at 2,930.75 on September 20, 2018. The market understood what the Fed and the tariffs together might do.
What the Fed and tariffs together did was almost cause a bear market within four months.
“The Trump trade was built on three expectations. Two arrived; the third was replaced by the first serious tariff war since the 1930s.”
4
▼ CYCLICAL BEAR
The Powell Tightening Overshoot
Three months. Minus twenty percent. The reason the Fed invented the ‘Powell pivot.’
Jerome Powell had hiked the federal funds rate three times by October 2018. The balance-sheet runoff that the Fed had begun under Janet Yellen in 2017 was accelerating. On October 3, 2018, in a public interview, Powell described the funds rate as “a long way from neutral,” a signal that more hikes were coming. The ten-year Treasury yield jumped from 3.1 percent to 3.25 percent in two days. The S&P 500 began a correction the next week. By late October, the index was down eight percent. By late November, down ten.
What made the slide a cyclical bear rather than an ordinary correction was the convergence of three forces at once. The trade war escalated through October; a tariff-truce deadline at the end of November expired without resolution. The Fed raised rates again on December 19 and, in the press conference that followed, Powell declared that balance-sheet runoff was on “autopilot,” the single most consequential wrong word of his tenure. The market read “autopilot” as “we will not stop even if things break.” The S&P 500 fell seven percent in the four trading sessions that followed, bottoming on Christmas Eve, December 24, 2018, at 2,351.10, down twenty percent from the September peak. Treasury Secretary Steven Mnuchin spent the holiday week on the phone with the CEOs of the six largest American banks confirming that credit lines were open.
On January 4, 2019, speaking at an American Economic Association panel in Atlanta, Powell walked everything back. The Fed would be “patient.” The runoff was not on autopilot. The next move might be a cut. The market closed up 3.4 percent that day and never looked back. The Powell pivot became the defining monetary policy event of the entire 2010s expansion. The federal funds rate would not reach a new high until 2022.
Fourteen months after Powell pivoted, a virus from Wuhan would test the Greenspan put and the Bernanke put and the Powell put all at once.
“The market read ‘autopilot’ as ‘we will not stop even if things break.’ The S&P fell seven percent in the four trading sessions that followed.”
5
▲ CYCLICAL BULL
The Fed Pivot Rally
Fourteen months. Forty-four percent. The last cycle of the pre-pandemic world.
Through 2019 the Powell Fed cut rates three times, the first on July 31, over the explicit objection of Trump, who had wanted larger cuts. On September 17, 2019, overnight repurchase-agreement rates spiked to ten percent as end-of-quarter funding pressures collided with the Fed’s shrinking balance sheet. The Fed intervened within hours with the first standing repo operations since 2008 and resumed buying Treasury bills by October. The market treated the operations as unofficial QE, which they were, and climbed on the liquidity. By year-end 2019, the S&P 500 was up thirty percent, its best year since 1997.
The trade war paused. On December 13, 2019, the United States and China announced a “Phase One” trade deal in which China committed to buy an additional two hundred billion dollars of American agricultural, energy, and manufactured goods over two years. The commitments were never fully met, and the deal would be effectively dead by late 2020, but the pause was enough to let 2019 close on an optimistic note. On January 15, 2020, the Phase One deal was formally signed in a White House ceremony. On January 11, 2020, the World Health Organization had quietly announced that Chinese authorities had identified a novel coronavirus as the cause of a cluster of pneumonia cases in Wuhan.
Through late January and early February 2020, the first US coronavirus cases appeared in Washington state and the Diamond Princess cruise ship was quarantined off Yokohama. The market absorbed the news as a China problem and kept climbing. On February 19, 2020, the S&P 500 closed at 3,386.15, an all-time high. Within thirty-three calendar days, the index would fall thirty-four percent, the fastest major bear market in American history.
The response, when it came, would reshape central banking.
“The market treated the September 2019 repo operations as unofficial QE, which they were, and climbed on the liquidity.”
6
▼ CYCLICAL BEAR
The COVID Crash
Thirty-three days. Minus thirty-four percent. The fastest major bear market in American history.
Between February 19 and March 23, 2020, the S&P 500 fell from 3,386.15 to 2,237.40, a thirty-four-percent decline over twenty-three trading sessions. There is no comparable event in the historical record. The 1987 Black Monday crash took a single day; the 1929 crash took seven weeks to reach a comparable magnitude; the 2008 Great Financial Crisis took thirteen months. The COVID crash concentrated an entire cyclical bear market into a thirty-three-day window because the trigger was not a slow financial unwind but the near-simultaneous shutdown of the global economy.
The Federal Reserve responded on a scale that eclipsed everything it had done in 2008. On March 3, 2020, Powell delivered an emergency fifty-basis-point cut, the first inter-meeting cut since 2008. On March 9, 12, and 16, the S&P 500 triggered Level-1 circuit breakers (seven percent declines halting trading for fifteen minutes), the first three triggers in American equity history. On the evening of Sunday March 15, Powell cut rates another one hundred basis points to zero and announced $700 billion of quantitative easing to begin immediately, dollar swap lines with foreign central banks, and the suspension of bank-capital requirements for the duration of the crisis. On March 23, the Fed announced it would purchase corporate bonds, including through exchange-traded funds, including sub-investment-grade issues. No central bank in a developed country had ever done this before.
The S&P 500 closed at 2,237.40 on March 23, 2020, and never traded below that level again. The following morning, Congress passed the CARES Act, authorizing $2.2 trillion of fiscal spending, including $1,200 direct payments to households, expanded unemployment insurance, and $500 billion of corporate lending authority administered through Treasury. The combined fiscal-and-monetary response totaled roughly $6 trillion within six weeks, approximately thirty percent of US GDP. The pandemic itself was far from over; the economic shutdown of April and May was unprecedented. But the financial crisis was over by late March.
What followed was the fastest, largest cyclical bull market since 1935.
“The Fed announced it would purchase corporate bonds, including through exchange-traded funds, including sub-investment-grade issues. No central bank in a developed country had ever done this before.”
7
▲ CYCLICAL BULL
The Fiscal-Monetary Bazooka
Twenty-one months. Up one hundred fourteen percent. The combined fiscal and monetary response totaled $6 trillion. The inflation came in 2021.
The Fed’s balance sheet grew from $4.2 trillion in early March 2020 to $8.9 trillion by April 2022. The federal budget deficit, which had been running at four percent of GDP in 2019, reached fifteen percent in fiscal 2020 and ten percent in fiscal 2021. Congress passed four additional pandemic-relief packages across 2020 and 2021, culminating in the American Rescue Plan signed by Joseph Biden on March 11, 2021, which added $1.9 trillion of fiscal stimulus to an economy that had already recovered to pre-pandemic output levels. By mid-2021, personal savings rates in the United States had reached levels not seen since World War II.
The combination produced the fastest, largest cyclical bull in modern memory. The S&P 500 reclaimed its February 2020 peak in August 2020, five months after the low. By year-end 2020 it was up sixty-eight percent from the March low. The Pfizer vaccine 95-percent-efficacy announcement on November 9, 2020 triggered a sector rotation that lifted energy, financials, and small caps while compressing the growth-stock premium that had defined 2020. Retail participation reached levels not seen since the dot-com era, abetted by the launch of commission-free trading in 2019 and the fiscal transfers of 2020-21. On January 28, 2021, the GameStop short-squeeze made retail-coordinated short attacks a permanent feature of market structure. On April 14, 2021, Coinbase direct-listed at an $86 billion valuation, bringing cryptocurrency to mainstream American brokerage accounts.
The inflation that followed was predictable in retrospect, dismissed as transitory in the moment. Headline CPI, which had averaged 1.8 percent in 2019, reached 2.6 percent in March 2021, 5.4 percent in June, and 6.2 percent in November, the highest since 1990. The Powell Fed and Treasury Secretary Janet Yellen spent most of 2021 insisting the inflation would recede on its own as supply chains normalized. It did not. By December 2021, headline CPI had reached seven percent and the Fed had admitted it would need to tighten faster than it had planned. On January 3, 2022, the S&P 500 closed at 4,796.56, an all-time high. Everything that followed through October 2022 was the market pricing a Fed that had been late.
Six weeks later, Russia would invade Ukraine, and the inflation would get worse.
“The Powell Fed and Treasury Secretary Janet Yellen spent most of 2021 insisting the inflation would recede on its own as supply chains normalized. It did not.”
8
▼ CYCLICAL BEAR
The Rate-Hike Shock
Nine months. Minus twenty-five percent. The first serious American inflation in forty years.
On February 24, 2022, Russian armed forces invaded Ukraine along multiple fronts. Oil prices spiked from $92 to $110 within hours and would reach $130 by early March. European natural-gas prices rose five-fold through 2022 as Russia weaponized its gas exports and the EU scrambled to replace them with American and Qatari LNG. The war did not cause the inflation of 2022, which was already running at 7.5 percent in January, but it extended the inflationary impulse into food and energy at exactly the moment the Fed was trying to break it.
The Federal Reserve made its first hike on March 16, 2022, twenty-five basis points from zero. By June the hikes had accelerated: a fifty-basis-point move in May, then a seventy-five-basis-point move on June 15, 2022, the largest single-meeting move since 1994. Three more seventy-five-basis-point hikes followed in July, September, and November. By year-end 2022, the federal funds rate had risen from zero to four-and-a-half percent, the fastest tightening cycle since Paul Volcker. The S&P 500 fell twenty-five percent peak-to-trough; the Nasdaq fell thirty-six percent; the Bloomberg Barclays Aggregate Bond Index posted its worst year on record. Growth stocks whose valuations depended on cheap money, including the pandemic-era winners Peloton, Zoom, and Robinhood, lost ninety percent of their peak valuations.
The tightening cycle broke things in sequence. In late September 2022, the newly-installed UK government of Liz Truss announced forty-five billion pounds of unfunded tax cuts, triggering a sovereign-debt crisis as gilt yields spiked and liability-driven-investment pension funds became forced sellers. The Bank of England intervened with emergency bond purchases, the first developed-market central bank to restart QE while fighting inflation. On October 12, 2022, with CPI still running at 7.7 percent, the S&P 500 bottomed at 3,577.03. Within six weeks a chatbot launched by a research lab in San Francisco would reach a hundred million users and begin the next cyclical bull.
That bull is still running today.
“Three more seventy-five-basis-point hikes followed. By year-end 2022, the federal funds rate had risen from zero to four-and-a-half percent, the fastest tightening cycle since Paul Volcker.”
9
▲ CYCLICAL BULL
The AI Boom
Four years and counting. Up one hundred sixteen percent. Still accelerating.
On November 30, 2022, a San Francisco research lab called OpenAI released a free consumer product named ChatGPT. Within five days it had one million users; within two months it had a hundred million. The underlying technology, large language models trained on internet-scale text corpora, had been developed over the preceding decade across a handful of research institutions, but the consumer-grade packaging was new. The business model that followed was recognizable. The infrastructure build that followed was not.
Through 2023, 2024, and 2025, the United States hyperscaler platforms (Microsoft, Google, Amazon, Meta) collectively committed over one trillion dollars of capital expenditure to AI data-center infrastructure. Semiconductor supplier NVIDIA, whose dominance in GPU accelerators had been built on a decade of CUDA software investment, saw its market capitalization grow from approximately $300 billion in October 2022 to over $3 trillion by late 2024, the first time a single American company reached that threshold. In March 2023, the collapse of Silicon Valley Bank and First Republic Bank (the second- and third-largest American bank failures in history) was contained by Treasury and FDIC action within forty-eight hours, confirming that the Fed had the tools and the political cover to prevent crisis-era regional-bank runs. By November 2023, the S&P 500 had reclaimed its January 2022 peak. By mid-2024 it had crossed 5,500 for the first time.
Donald Trump was re-elected on November 5, 2024, returning to the White House after four years out. His second-term administration began on January 20, 2025 with a sequence of executive orders and tariff announcements that reset the global trade order established since 1945. The “Liberation Day” tariff schedule announced on April 2, 2025 represented the largest single-day tariff increase in American history. The market absorbed the shock, then kept climbing on the strength of AI capex and a Federal Reserve that had successfully returned inflation to target by late 2024 while leaving rates meaningfully positive in real terms. As of today the S&P 500 trades near 7,720, up 115.8 percent from the October 2022 low, up 391 percent from the March 2013 secular-bull inception. The cyclical bull that began that November has not had a drawdown greater than ten percent in its four-year life.
The question for anyone reading this today is whether this is late-cycle or mid-cycle. The analysis follows.
“US hyperscaler platforms collectively committed over one trillion dollars of capital expenditure to AI data-center infrastructure.”
Thirteen years. Four cyclical bulls. Three cyclical bears. One ongoing phase.
The 2013-present AI & Passive Revolution is the fourth secular bull of modern American market history. It began from fair-to-cheap valuations, was accelerated by the greatest central-bank intervention in American history, and has concentrated more market capitalization in fewer companies than at any point since the nifty-fifty era of the late 1960s. The three cyclical bears so far have each been shorter and shallower than the historical average, suggesting the secular current is intact.
Investors who entered the index in March 2013 and held through all of it have earned roughly ten-and-a-half percent a year in real terms, a return comparable to the Postwar Golden Age of 1949-1966 and better than the Great Moderation of 1982-2000. The retail investors who panicked in March 2020 or October 2022 earned catastrophically negative returns. The ones who added at those lows are compounding at rates investors did not see between 1966 and 1982.
The secular current moves in generations. The cyclical weather moves in months. We are, as of today, deep in a secular bull and inside an ongoing cyclical bull that has run four years without a ten-percent drawdown. Both of those facts are useful. Neither is a timing signal.
Where Are We Now?
Thirteen years into the AI & Passive Revolution. Four years into its most recent cyclical bull. The S&P 500 has quadrupled since the secular bull began. CAPE is back above thirty, levels last seen in 2000 and 2021. Three of the four prior secular bulls were still running at year thirteen. One of them, the 1949-1966 Postwar Golden Age, ran four more years before rolling over. One, the 1982-2000 Great Moderation, ran five more.
The question is not whether a secular bear is coming. One always is. The question is whether this one is close, and if so, what you should do about it. That is what the secular dashboard, which lives at the hub, is for.
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