Many investors may think a market high is a signal stocks are overvalued. However, they may be surprised to find that the average returns one, three, and five years after a new month-end market high are similar to those after months that ended at any level.
• In looking at all monthly closing levels between 1926 and 2022 for the S&P 500 Index, 30% of them were new highs.
• After those highs, the annualized returns ranged from almost 14% one year later to more than 10% over the next five years, which were close to average returns over any period of the same length.
Stocks are priced to deliver a positive expected return for investors, so reaching record highs regularly is the outcome one would expect.
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Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
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