Don’t be Afraid of Market Highs

By Tyler Denholm, CFA – VP Investment Management & Research – TOPS ETF Portfolios

As a portfolio manager, friends and family (and sometimes random people) will ask me about stock market performance and/or try to get advice on how they should invest extra funds. At least I’m not a doctor, however, I can only imagine the questions they get asked. I think I’ll stick to talking about economics and investing.

The conversation usually begins like this:

Friend: “You work in the financial industry; what do you think about the current stock market?”

Financial Professional: <Insert comments on valuations, geo-political risks and/or economic risks.>

Friend: “I have some money on the sidelines that I have been wanting to invest but the market is at an all-time high so I’ll just wait for a pullback.”

Financial Professional: “It’s about time in the market…not timing the market.”

The “all-time high” comment has become a very common concern for retail investors since the beginning of 2013, when the S&P 500 price index surpassed the previous high from before the Great Recession. With fears still fresh from 2007, many investors assume that a new stock market high is indicative of a market gone wild. However, just because the market is making new highs, does not mean investors should sit on the sidelines. In 1937, the S&P 500 was at about 18. With the index now over 2,160, that means we have reached over 2,100 new all-time highs in the last 79 years. Not exactly our first rodeo.

Related: Is a Growth-to-Value Leadership Change Underway?

Analysis of Past Market Highs

Historically, the stock market has had a number of peaks, followed by bear markets which then lead to bull markets that surpass the previous highs. In the table below, nine such market cycles have been analyzed. On the left is the date and value of the S&P 500 price index showing a market peak just prior to a bear market. The middle column shows the date post-bear market when the market reclaimed its previous high. The last column shows the date the market peaked again before another bear market.