Market Insights: Investing at all-time highs

James Sawdon
James Sawdon

On Tuesday, July 16th, the S&P 500 surged to an unprecedented intra-day high of 5,669, marking a remarkable 19% year-to-date return for 2024. The standout performers contributing to this surge include Nvidia, boasting a staggering 155% increase YTD, and Lilly, which has seen a notable 61% rise over the same period. Despite the concentrated nature of these gains and the absence of widespread market participation, the index has nonetheless achieved a new pinnacle.

Market Insights: Investing at all-time highs

In light of this milestone, investors might question whether now is the opportune moment to enter the market or if it might be prudent to await a potential pullback. The accompanying charts offer some insightful perspectives on this dilemma. The chart on the left in Figure 1 indicates that historically, upon reaching a new all-time high, the market has set a new floor (never falling more than 5% below that) at least 30% of the time going back over 70 years. Meanwhile, the chart on the right in Figure 1 illustrates the cumulative returns of the difference between investing on any day versus investing on days when the market sets a new all-time high. The data from the past 35 years would support that investing on days when an all-time high is reached would provide a greater return.

Figure 1

While these observations make a compelling argument to invest on days like July 16th, 2024, it is critical to remember that price is just one facet of the equation; VALUATION is equally critical. Figure 2 underscores that current valuations (based on Forward P/E) stand over 30% above their standard deviation over the past 30 years.

Figure 2

Based on the current market dynamics highlighted above, it is important to remember that investors should approach the decision to buy cautiously. While historical data suggests that markets often continue to perform strongly after reaching new highs, there is also a risk of potential pullbacks that is supported by the valuation metrics. It is especially prudent under these circumstances to consider a diversified approach, rather than making decisions solely based on recent market performance. This risk is magnified by the fact that current market returns have been driven by a very small cohort of stocks. If you are interested in learning more about how we design portfolios to achieve your specific goals, please don't hesitate to reach out.

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