S&P500 posts 1153rd record high close since 1928, what happens next?
If we were to do a poll of random investors, asking them this very same question, our guess is the answer would not be a positive one. It is natural to think that when a stock market, in this case the U.S. large cap index, is at or near a high, whether it be a monthly, yearly, or all-time high, it is not a good time to invest. The truth is the exact opposite is true. We have stressed in the past that relative strength is an important tool in determining what you should and shouldn't hold in a portfolio. You want to own the markets or stocks that are performing well and vice versa. That is easier said than done in practice, but the principal is sound. So back to our original question, what happens next? A picture is worth a thousand words:
Source: AthenaInvest, S&P Dow Jones Indices LLC
The bottom line is that when the S&P500 hits a new all-time closing high, in 98% of the cases, either the market hits a new record closing high the very next day, or it pulls back on average 1.7% before recovering to hit a new high on average within 17 days. That is a pretty compelling picture that essentially says that over the long-term, you should simply be invested, and that the evidence shows that you should not fear new highs. Does that mean you shouldn't have risk management measures in place? Absolutely not, as bear markets can no doubt be devastating, especially like the one endured in 2008-2009, and can take years to recover from. However, these periods are almost always during recessionary periods, which is why we have our Milestone Recession Risk Composite to help gauge this risk and use it as a tool to 'de-risk' portfolios when warranted. Currently, our composite is still showing very low recession risk for the U.S. over the coming 6-12 months.