Record highs seem to be the norm this year. The index hit it’s 51st new high for 2021. So far, this year has been a great for stocks. Below are charts that help put it in perspective.
New S&P 500 Highs by Year
This chart, from our team at LPL Research, shows the number of new high we have had each year. “As impressive as 50 new highs is, investors need to remember that new highs happen in clusters than can last decades. We’ve been sharing this chart for years, saying exactly that: previous periods of new highs lasted much longer than most expected. Mark Twain said, ‘history doesn’t repeat itself, but it often rhymes.’ If History rhymes once again, we could still have several more years of new highs” (LPL Research Blog).
Should You Buy an All-Time High?
As you can see here, the red marks previous all-time highs. For some, all-time highs can be scary because no one wants to be the one investing their hard-earned money right before a correction. But data suggests investing at all-time highs has been historically bullish (positive). Sitting in cash just because the S&P 500 is making new highs has been costly. People may have their own reasoning for not buying stocks but choosing to do so because the market is at all-time high, isn’t a good reason.
Today vs DotCom Bubble
Some have said that our current market is similar to what we saw in 2000. The data from the chart suggests otherwise, as you can see the trailing 5 year returns still have a way to go before reaching the levels of the DotCom bubble. The DotCom bubble is a time when the market skyrocketed and then fell about 49%. The market has returned +125% the past 5 years, which is much lower than the +233% return we saw leading up the bubble.
Current Volatility Compared to 2020
The stock market has made a significant recovery since it’s pandemic low of March 2020. The S&P 500 is up over 100% since then. During 2020, the market returned around 18% and this year we have seen a similar return thus far. However, how we got to these returns have been completely different. This year we have had historically low volatility following a year that had above average volatility. Investors who have stayed the course throughout the pandemic have been rewarded. Volatility is part of the market, and I wouldn’t be surprised if we see more in the coming months.
The Bottom Line
My best advice is to not make portfolio adjustments based on the market hitting new highs. As investors, our goal is to build wealth so we can live the life we want and so far, 2021 has helped us do that. As always, please don’t hesitate to reach out with any questions.
George Maroudas
847-550-6100
george@pmgwealth.com
Twitter @ChicagoAdvisor
Disclaimers and Sources:
New S&P 500 Highs by Year Chart: Link here
Should You Buy An All Time High Chart: Link here
Today vs DotCom Bubble Chart made with data from YCharts: Link here
Current Volatility Compared to 2020 made with data from YCharts: Link here
The market refers to the S&P 500 index.
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