Don’t Fear Record Highs

Market Blog
November 20, 2019

“Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffett

The S&P 500 Index has trended higher in an unusually persistent fashion recently. The benchmark has notched 10 record-high closes over the past four weeks, including four straight through November 18.

It’s human nature to get nervous when market conditions are too calm, especially with an uncertain outlook and an aging bull market. However, we urge investors not to lose sight of their goals.

As shown in the LPL Chart of the Day, the S&P 500 has consistently powered past record highs. Since 1950, the benchmark

average-return-after-high_1

Stocks rarely move higher in a straight line, though. Since 1950, the S&P 500 has declined an average of 2% in the month after a record-high close. In 2018, the S&P 500 notched a record high September 20, only to fall nearly 20% by December 24. Volatility can be uncomfortable, and it can be difficult to stay focused on long-term prospects when prices are falling.

Luckily, history shows that even the swiftest sell-offs don’t last forever. After the S&P 500’s nearly 20% slide in late 2018, it recouped all of its losses in the next four months. In 2011, the index dropped 19% from April to October before reaching new highs again in March 2012. The S&P 500 even found its way back to record highs after the 2008–09 financial crisis, nearly 5.5 years after its 2007 October peak.

“Even though the path can be rocky, stocks have historically offered long-term opportunity for investors,” said LPL Financial Senior Market Strategist Ryan Detrick. “It’s important to stick to your investing plan in times of volatility and calm. We still view volatility as an opportunity for suitable long-term investors consider rebalancing portfolios or add to positions.”

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This Research material was prepared by LPL Financial, LLC.

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