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Wednesday
Jul132016

Learn to Embrace New Highs

It's been an interesting start of the week for those of us watching the stock markets. In case you hadn’t noticed, the S&P 500 index reached record territory on Monday, and the NASDAQ briefly crossed over the 5,000 level before settling back with a more modest gain.  At 2,137.6, the S&P 500 finished above the previous high of 2,130.82, set on May 21, 2015.

We’ve waited more than a year for the markets to get back to where they were before the downturn this January, before Brexit, and before a lot of uncertainties in the last 12 months.  The market top itself is an uncertainty; after all, many investors regard market tops warily.  When stocks are more expensive than they've ever been (or so goes the thinking) it may be time to sell and take your profits.  However, if you followed this logic and sold every time the market hit a new high, you’d probably have been sitting on the sidelines during most of the long ride from the S&P at 13.55 in June 1949, which was the bull market high after the index started at 10.  New highs are a normal part of the market, and it is just as likely that tomorrow will set a new one as not.  In fact, overall, the market spends roughly 12% of its life at all-time highs.

We all know that the next bear market will start with an all-time high, but we can never know which one in advance.  That's why in this business we say that there's nothing better than a new high, except the one that marks "the top".  But new market highs do not necessarily become market tops.  Let’s see if we can all celebrate this milestone without the usual dose of fear that often comes with new records.

Sources:

http://www.forbes.com/sites/shreyaagarwal/2016/07/11/sp-500-closes-at-record-high/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix#7f74bf29721d

http://www.marketwatch.com/story/us-stock-futures-climb-with-sp-near-record-high-2016-07-11?siteid=yhoof2

http://www.usatoday.com/story/money/columnist/waggoner/2014/06/19/new-highs-dont-mean-you-have-to-sell/10921973/

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

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