The stock market rally is unstoppable. This is when the naysayers will back down.

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The stock market rally appears to have defied gravity, leaving the bears waiting for something to trigger a decline. At some point, they will have to give in and buy shares.

THE

S&P500

is up about 25% from its bear market low reached in early October. While it might be reasonable that the market rallied slightly from that point, the magnitude of the rally caught many off guard. Driving the gains was hopes that the Federal Reserve will soon end its interest rate hikes as inflation continues to subside. The idea is that when rates stabilize, so will the economy and corporate earnings. But there is a short-term risk to earnings as the impact of higher interest rates comes on a lag.

Meanwhile, the market is now expensive, with the S&P 500 trading at just over 19 times earnings-per-share estimates. That’s about 15 times at the start of the recovery – relative to the high level of interest rates, this is a historically high multiple.

This is why a number of events could have pushed the market back, such as the jump in Treasury yields that occurred in the first week of July. In another example of something that would typically put the market under pressure, the fed funds futures market is still expecting the Fed to raise rates one or two more times before the end. A possible future drag on the market could be the lackluster outlook for companies during the second quarter earnings season.

And yet, stocks have largely risen, choosing to look beyond those headwinds. The market seems laser-focused on the eventual decline in interest rates and the boost this will give to earnings.

This means that at some point, those who are bearish in the market will have to “capitulate” and let go of their pessimistic views and choose to buy stocks. That point seems to be approaching: Evercore strategists have written that roughly the 4560 level for the S&P 500 is where the bears will turn more bullish. The index is currently slightly above 4500. The 4560 level would be up just over 27% from the October low.

This gain would reflect something seen in the past. During the financial crisis, the S&P 500 rose just over 27% from a low point, only to fall back to that low point taking into account the coming recession. So if the index hits 4560 and remains flat and doesn’t show many signs of cracking, bears will likely assume the market has moved past recession fears, even if a slight one is on the way in the near term.

At this point, if the bears can’t beat the market, they may join it.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com