Riding the Wave: Why All-Time Highs Might Signal Strength

On the rollercoaster ride of the stock market, reaching all-time highs often triggers mixed emotions among investors. While some may interpret it as a peak signaling an imminent downfall, history tells a different story. Contrary to the adage “what goes up must come down,” all-time highs are not necessarily ominous signs but rather indicators of underlying strength and potential for further growth.

Stocks are represented by S&P 500® index total returns from 1950–2023. Past performance is no guarantee of future results. Source: Fidelity, Strategic Advisers LLC, Bloomberg Finance, L.P., from 12/31/1949 to 3/31/2024, daily data. The S&P 500® index represents US stocks. It is not possible to invest directly in an index. All indexes are unmanaged. The average 1-year total return was 12.4% over this time period. Source: Fidelity Investments Strategic Advisers LLC.

According to Naveen Malwal, an institutional portfolio manager with Strategic Advisers LLC, all-time highs have historically paved the way for more highs. He asserts, “New all-time highs have typically led to further all-time highs.” This optimism stems from the alignment of favorable economic conditions and robust earnings, laying the groundwork for sustained growth.

Delving into the numbers, data since 1950 reveals that in the year following an all-time high, the S&P 500 index has seen average total returns of 12.7%, slightly edging out other 12-month periods at 12.4%. Moreover, analyzing each instance of the market hitting all-time highs showcases a trend of continuous ascent, debunking the myth of an immediate downfall post-peak.

Yet, amidst the euphoria of soaring markets, some investors succumb to the temptation of timing the market or exiting prematurely. However, this knee-jerk reaction can prove costly in the long run. Missing out on even a handful of the best-performing days can significantly dent portfolio returns. A hypothetical scenario from 1980 to 2022 demonstrates that skipping just the five best days could slash the portfolio’s value by as much as 38%.

Stock returns are represented by the S&P 500® index from January 1, 1980, to December 31, 2022. Past performance is not a guarantee of future results. Source: Fidelity, Asset Allocation Research Team, Bloomberg, as of 12/31/22. Updated analysis will be forthcoming in the second quarter of 2024. The hypothetical example assumes an investment that tracks the returns of the S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. “Best days” were determined by using the one-day total returns for the S&P 500® Index within this time period and ranking them from highest to lowest. There is volatility in the market, and a sale at any point in time could result in a gain or loss. Your own investment experience will differ, including the possibility of losing money. It is not possible to invest directly in an index. All indexes are unmanaged.

The allure of waiting for a downturn to enter the market is another common pitfall. However, attempting to time the market is akin to chasing shadows, with little guarantee of success. Malwal aptly notes, “I have never seen a reliable way of knowing the absolute best time to buy and sell the market from day to day.” Moreover, the potential benefits of perfect timing pale in comparison to the risks of missing out entirely or entering at an inopportune moment.

In navigating the unpredictable terrain of the stock market, steadfastness and a long-term perspective are paramount. Following a well-crafted investment plan in line with personal goals and risk tolerance is crucial, rather than letting short-term fluctuations or market noise influence you. Market corrections, a natural feature of investing, should be anticipated rather than feared.

Malwal underscores the importance of staying focused on the big picture, citing positive economic indicators as grounds for optimism. With low unemployment, wage growth, and promising corporate earnings forecasts, the outlook remains favorable. Despite the inevitability of market fluctuations, the trajectory of the S&P 500 over nearly a century reflects a steadfast upward trend.

The best timing scenario is defined as investing $5,000 at a market bottom each year. The worst-time scenario is defined as investing $5,000 at a market top each year. The start of every year is defined as investing $5,000 in January of each year. Monthly figures reflect investing about $417 per month. Cash figures reflect holding a cash-only portfolio. Past performance is no guarantee of future results. Source: Fidelity, Strategic Advisers LLC, Bloomberg Finance, L.P., from 12/31/1979 to 12/31/2023. Stocks—S&P 500® Index. Cash—generic US. It is not possible to invest directly in an index. All indexes are unmanaged. 3M Treasury yield.

As we navigate the peaks and valleys of the stock market, it’s crucial to remember that all-time highs are not cliffs but milestones marking a journey of growth and resilience. By staying the course, investors can harness the momentum of these highs to propel their portfolios towards long-term success.


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The Wealth of Advice is a financial blog that is focused on retirement and wealth information, with a little of everything else sprinkled in.

I manage portfolios for clients and myself at Old North State Wealth Management.

Disclosures can be found here.

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