What keeps bull market going? A rally recipe

Published Fri, May 15 201512:50 PM EDTUpdated Mon, May 18 20158:15 AM EDT

The S & P 500 is on the cusp of surpassing its record level reached April 27. If it does, this bull market becomes the third-longest ever since 1928 at more than 2,250 days, or a little over six years, according to Bespoke Investment Group. But the market feels tired. The euphoria is not here. Investors continue to pull money out of stocks. What's it going to take to keep this bull run going? Here are five catalysts. For such a long time, investors have relied on bad economic news to push Fed interest rate hikes off further into the future, and therefore buy stocks. At some point this cycle needs to end, investors said, and the actual economy—not cheap money—needs to take over. Proof this could work came a week ago when the government said the unemployment rate fell to a seven-year low and the S & P 500 rallied 1.3 percent. The consumer did not spend those savings from lower gasoline prices last quarter. Now it's time for them to step up to the plate. "We need the consumer to feel better about spending, which will help the corporate bottom line," said Scott Nations of NationsShares. "If retailers start to perform well it will be off to the races for the S & P." Analysts were expecting a decline in earnings for the first quarter. With the season almost over, profit growth for S & P 500 companies will come in at about 3 percent for the quarter, according to S & P Capital IQ. Even after a surprisingly good reporting period, company outlooks remained weak. Analysts expect profits to fall in the second and third quarters. At 17 times, the S & P 500's price-earnings ratio is at its highest level in the last 40 years (not counting the technology bubble of the late 1990s), according to Goldman Sachs. That means the 'E' part of the P/E ratio needs to start doing the heavy lifting. Multiples tend to not expand when interest rates increase. Technology shares are Wall Street's favorite sector with seven of the nine major investment banks recommending an "overweight" to the stocks, according to Birinyi Research. They are typically the bull market leaders, signaling a broad economic upturn based on increased productivity and innovation. Yet the technology portion of the S & P 500 is up just 4 percent this year, fourth best among the 10 major sectors. The group suffers from a lack of confidence from investors, who are reluctant to pay higher multiples for the companies' stellar earnings. "A common investor misperception we encounter is that info tech is inundated with firms that trade at exorbitant EPS multiples. In fact, the majority of the sector's constituents within the S & P 1500 trade below the median market multiple," said Oppenhiemer's Andrew Burkly in a note titled "Can a bull market end with tech this cheap?" "We continue to like info tech on a longer-term basis given its relatively strong EPS prospects, later-cycle exposure and increased penetration of consumer end-markets," wrote Burkly. Read More Dow Theory gives warning signal…again Many investors said the most healthy thing to keep this bull market alive is a correction. A 10 percent pullback by the S & P 500, which hasn't happened in four years, could allow earnings to catch up with prices, wash out some of the short-term money and allow the market to get this higher-rate indigestion out of its system.

Trader on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

The S&P 500 is on the cusp of surpassing its record level reached April 27.

If it does, this bull market becomes the third-longest ever since 1928 at more than 2,250 days, or a little over six years, according to Bespoke Investment Group.

But the market feels tired. The euphoria is not here. Investors continue to pull money out of stocks.

What's it going to take to keep this bull run going? Here are five catalysts.