Capital Market Impact

Is it smart to buy stocks when they’re at record highs?

May 29, 2024
A professional speaking with clients at a table

It’s been a bumpy ride for investors in the volatile equity bull market since the October 2022 low, mainly due to fears that the smoldering embers of inflation might reignite and force the Federal Reserve to keep interest rates “higher for longer”. However, since the bear market bottom in 2022, and despite the fear-driven volatility, the S&P 500® Index has returned nearly 52%, including a rise of more than 11% so far in 2024. As of this writing, the S&P 500 has reached its 24th all-time high this year.

S$P 500 Index forward performance by day

Whenever stocks go on a good run, investors may wonder if investing in a market at all-time highs is a recipe for disaster. It’s common for investors to turn apprehensive and stay on the sidelines during these spells, waiting for a pullback before putting new capital to work. Yet, historical data show that when markets have reached all-time highs in the past, it hasn’t necessarily indicated impending market drawdowns. In most cases, stocks have surpassed these records and continued to rise.

If there’s any recipe for disaster when it comes to investing, it’s in trying to time the market’s peaks and valleys. Long-term investors may feel skeptical about pouring savings into a frothy market, but staying invested and sticking to a long-term financial plan is the more prudent approach to allocating capital. For investors who interpret all-time highs as a contrarian signal to avoid stocks, history shows they will likely miss out on future gains.

It’s not unreasonable to assume that the current bull market can continue, given the resilience of corporate profits in the latest earnings season. Investors should remember that earnings are the fundamental backdrop to equity performance. Moreover, stocks are supported by several favorable tailwinds right now, including breadth and rising earnings-per-share estimates, which should lend support to the current market rally.

Investors should continue to focus on the long-term and not fear investing when markets are at all-time highs. Maintaining discipline through different market cycles and avoiding market timing are the keys to achieving enduring success as an investor.

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