“One of the most bullish things that can happen to any market is for it to reach new multi-year highs.“ Bloomberg, March 5, 2014
Markets closed at a new all-time high today.
The usual suspects have already proffered their litany of horrors – valuations are too high, gains are too narrow, we have too much market concentration and a toppy feel, to say nothing about all of the new geopolitical risks that continue to accumulate in tariffs, war and oil prices.1
The problem is that the data simply does not back up their fears:
“Consider the actual historical data. New highs occur very regularly during bull markets. This makes the crash insistency much less compelling. Indeed, we tend to see many more new highs during the secular bull markets than we do during the bear cycles.”
A column I wrote for Bloomberg in 2014 pointed out that the Dow made 492 new all-time highs from 1982 to 1999; in the 12 years covering 1952 to 1965, it made 279. Admittedly, the very last all-time high always takes place before a bear market. But the data shows that if you invest during all-time highs, you do better than you would if you’re investing randomly on any other day in a market cycle (see chart at top).
You might be wondering when to skip an all-time high, but making that bet seems like a fool’s errand. Note we were having this same discussion 11 years ago; consider how disastrous selling the 2014 all-time highs (pandemic and all) would have been.
Yes, it’s true: To avoid that very last all-time high, the 492nd ATH before the March 2000 top, you would have had to miss a substantial number of the 491 prior highs that preceded it over the prior 16 years or so.
The odds there make that seem like a terrible bet to me…
UPDATE:
Pete Mallouk points out “from its inception in 1957 through today, the S&P 500 has hit 1,231 all-time highs…The lesson? Don’t fear new highs…”
Previously:
No, Market Highs Are Not a Bad Sign (March 5, 2014)
All-Time Highs Are Historically Bullish (February 22, 2024)
See also:
All-Time Highs in the Stock Market are Usually Followed by More All-Time Highs (A Wealth of Common Sense, February 8, 2024)
Nothing is More Bullish than All-Time Highs (The Irrelevant Investor, February 03, 2024)
Should You Buy An All-Time High? (Dollars & Data December 29, 2020)
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1. I am reminded of a quote from the psychologist Paul Ekman:
“Emotions change how we see the world and how we interpret the actions of others. We do not seek to challenge why we are feeling a particular emotion; instead, we seek to confirm it.” -“Emotions Revealed: Understanding Faces and Feelings”
Ekman was discussing general individual behavior, but confirmation bias surely applies to markets: Bears fixate on items that confirm their negativity; Bulls fixate on datapoints that confirm their positive viewpoint.
