New Highs. Now What?

We’re all reading headlines telling us that the stock market has reached all-time highs, something that never happened in 2023.  Many investors who have a worrisome mindset will think that means that there’s a high likelihood that we’ll see a downturn in the near future.  The markets have nowhere to go but down from here, right?

There’s a kind of logic to this assumption, but history says that it’s actually wrong.  Since 1973 (the modern stock market), the markets have achieved an average 10.1% positive return over the 12 months following an all-time high, which is actually higher than the average 12 month return from any random day during that time period (+9.5%).  Going back further, for shorter time frames, since 1950, 80% of record highs have led to at least one more record high the following week, and the markets generally hit a new all-time high (again, on average) every 19 days.

If you go back 60 years (since 1964) the average one, two and three-year returns after a record high are 12%, 23% and 39% (these are aggregate, not annual returns), which is surprisingly close to the 12%, 25% and 38% average aggregate returns for all other one-, two- and three year time periods.

This is not to say that the markets will not or cannot go down from here; they can and they might.  But the most consistent thing about the markets is that, no matter where you start, the overall long-term trend has been positive, and all-time highs are, perhaps surprisingly, no exception.

Sources:

https://ca.finance.yahoo.com/news/stock-market-history-shows-record-highs-arent-a-bad-time-to-buy-103029686.html

https://www.fxstreet.com/news/sp-500-index-returns-following-record-highs-are-positive-ubs-202401301450

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