The S&P 500 traded to an all-time high to close out the first quarter. What should you do now that the stocks are at all-time highs? Will stocks fall now that they have peaked, or will they continue to climb? Time will tell. After all, if you summit a mountain and reach the peak, your next move is to turn around and come down. Sir Edmund Hillary and Tenzing Norgay spent about fifteen minutes atop Mount Everest before descending.[1]
Should you buy stocks when they touch all-time highs? Let’s see. Suppose you purchased stocks at previous market peaks and held them through the end of the first quarter, March 31, 2024.
- October 1928. The average annual return from this peak was 9.93% despite Black Tuesday, the stock market correction in October 1929, the Great Depression, and WWII.
- August 1987. The S&P 500 was up 32% in 1987 before stocks fell 22% on Black Monday, October 19, 1987. However, if you bought stocks in August, your average annual return was 10.29%.
- December 1999. The internet fueled the S&P 500 returns from 1995 to 1999 as the index soared 220% before it fell 49% from 2000 to 20003. If you purchased stocks at this peak, your average annual return was 7.63%.
- October 2007. Stocks peaked in October 2007, before the worst recession since the Great Depression. During the Great Recession, stocks fell 56%. If you purchased stocks at this peak, your average annual return was 9.95%.
- February 2020. If you purchased stocks in February 2020, your average annual return was 14.26% despite the COVID correction and the stock market crash in 2022.
The average return from these previous peaks was 10.41%, which is impressive considering you bought stocks at the “worst” time in history.
I started my career on May 9, 1989, when the S&P 500 index stood at 295; it’s now trading at 5,205, an increase of 1,600%! In 1991, Jack Vander Vliet of Dean Witter predicted that the Dow Jones would climb to 10,000 by the year 2,000. It was a crazy prediction, considering the index was trading at 2,619. However, he was right. The Dow crossed 10,000 in June 1999. Today, it’s approaching 40,000.
If you want to sell stocks when they near new highs, think again because you can miss out on significant gains. Stay invested, my friends.
Dow 100,000 by 2035?
Our peace shall stand as firm as rocky mountains. ~ Shakespeare
April 2, 2024
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
[1] http://www.history.com/news/7-things-you-should-know-about-mount-everest, Jesse Greenspan, May 29, 2013, accessed August 12, 2016.