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  • Writer's pictureRobert Baharian

All Time Highs Are Historically Bullish

Markets are at all-time highs (ATHs). The economy is in good shape. Investor portfolios are ticking along nicely. The most common question I'm getting at the moment is whether the stock market can continue its run given ATHs. As regular readers would know, I turn to the history books to guide me to into the future. Thanks to Barry Ritholtz for this one.

This table below looks at historical ATHs and what was going on in markets at the time and what was the stock market's return one year following a new ATH.

Source: 3Fourteen Research

Going back to 1954, 1-year forward returns (third column from the right) have always been higher except for 2007 - this was just before the GFC was got started. Housing had already peaked, and subprime mortgages were defaulting.

This is now the 15th ATH after 12 months of being under water. One year later, returns have ranged from 4.9% to 36.9% (excluding the GFC and you were only down -8.6%), averaging about 14%. What's more is that the Fed did not pause11 out of 15 times, or in 73% of cases. We had 3 soft landings (shaded in green), both when the Fed had paused and otherwise. Furthermore, the following bull market generated returns of 9.7% and 350.8%, with an average of 85%. Again, excluding the GFC, even so, the return was 2.1% - you just had to hold on and go for the ride.

What's even more interesting, is that investments made on days of ATHs, are no reason to take chips off the table. Sure, over really long periods of time, the price you pay dictates your return, but during shorter time frames, say up to 3 years, investing at an ATH is largely no different to any other period.

ATHs are telling you that the market is bullish. And if history is any guide, I think we could be in for a treat. The question is whether 2024 is anything like 2007, or all other periods where ATHs were created?


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