Ivan Illán is an award-winning financial services entrepreneur and bestselling author.
It seems lately whenever you’re scanning news headlines, there’s a recurring theme being reported. It’s supposedly momentous news. But actually, it’s a fairly routine monthly, weekly or even successive daily occurrence. I’m referring to the ubiquitous “new all-time high stock market record” headline. Unfortunately, this seemingly exciting phrase stirs more greed, fear of missing out and, consequently, bad decision-making than any other, in my experience. No one wants to miss out on new stock market highs. In truth, it’s easier to achieve than you may think.
Stock market records are not very interesting but make for fine chitchat. They also occur regardless of feel-good or anxiety-ridden times. How often does the stock market achieve a new all-time record high? The following is a sampling of the past few years, along with the year’s total return (using the S&P 500 total return as a proxy for the U.S. stock market; additional data analysis from my YCharts subscription):
• 2017 recorded 62 new all-time highs and a 21.83% total return.
• 2018 had 18 new all-time highs and a -4.38% return.
• 2019 had 35 all-time highs and a 31.49% return.
• 2020 achieved 30 new record highs and an 18.40% return.
MORE FOR YOU
What can we deduce from this data? Probably not too much, but it’s worth digging deeper into the years of 2018 and 2020 amidst the broader bull market trend.
Even though 2018 witnessed the S&P 500 set 18 new record highs, it was still a lackluster loser year overall. Furthermore, between September 20, 2018, and December 24, 2018, the S&P lost 19.36% of its value — very close to technically becoming a true “bear market” (defined as a market price loss of at least 20% from its previous high). Personally, I think this one counts as a bear market. It’s close enough.
Likewise, in 2020, between February 19, 2020, and March 23, 2020, the S&P 500 fell 33.79%, which is a solid bear market. This bear happened to have been coupled with a technical recession, too. However, the bounce back was quick, and 2020 went on to deliver 30 new all-time highs.
Based on this closer look, you can see that even within a year where bear markets become manifest, the stock market has demonstrated impressive resilience to the upside. It’s somehow able to shrug off the doom-and-gloom of the moment and jump back to its previous highs before too long. However, this isn’t always the case. Sometimes, the market can remain sour for much, much longer. We don’t need to look at ancient history for a reminder, either.
Between October 8, 2007, and March 13, 2013 (a period of more than five years), the S&P 500 (price level) returned 0%, i.e., nada, zero, zilch. After falling more than 56% by March 9, 2009, it took over four years to breach its previous record. The years of 2008, ’09, ’10 ’11, and ’12 never trumpeted a headline of new all-time highs or new stock market records. Even though enthusiastic record-setting headlines were nowhere to be found, the S&P 500 experienced a whopping price level return of 130% from the March 2009 low to March 2013. I’d trade new all-time high headlines for actual long-term returns any time.
As you consider your investments and their return expectations, temper them just a bit with the harsh reality that there are indeed bleak times in global equity markets. Whether investors are headed for challenging times is less about “if” and more a question of “when.” Sticking with an investment discipline and strategy that you have confidence in — through thick and thin — is the most comforting old news of all.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation. CRN202304-281359