Engaging in investment activities while the stock market is trading at or near its peak can invoke feelings of apprehension.
Those who have refrained from participating in the current bullish market trend may have feelings of remorse for not investing earlier. Conversely, individuals heavily invested in equities may perceive the current bullish trend as nearing its conclusion rather than its inception. Indeed, every period of declining market sentiment typically commences shortly after equities achieve a new peak.
However, historical data indicates that the current juncture might be an opportune moment to allocate your funds to equities.
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Equities Tend to Sustain Uptrends After Achieving a Novel Record High
By and large, equities exhibit an upward trajectory over the long haul. To sustain this trajectory, they must continually achieve new peaks, meaning that one record high usually paves the way for another. For instance, the S&P 500 marked a record high in 1995 on 77 occasions, representing roughly 30% of all trading days.
In 2024, the index has already recorded 22 all-time highs within the initial three months of the year. It would not be surprising to witness equities forging ahead and setting new record highs for an extended period.
Historically, the S&P 500 has progressed to garner an average 14% gain one year after securing a new record high, as per findings by Truist Advisory Services. Currently, equities are trading approximately 8.5% above the previous peak recorded in January 2022, indicating substantial room for growth in the ensuing months.
A more expansive view also yields optimistic outlooks. On average, the S&P 500 has climbed over 50% higher three years after marking a record high, and nearly 80% higher on average after five years, based on data compiled by JPMorgan. Notably, these figures surpass the average returns observed on typical trading days. In essence, investing during a market peak often proves to be an opportune time for acquisitions.
The Optimal Strategy for Investing During Record Market Highs
For individual equity investors, identifying undervalued opportunities in the market when equities are at record highs may pose a challenge compared to market bottoms. Nonetheless, viable opportunities typically abound. Conducting thorough research and identifying superior companies trading at just valuations can yield substantial rewards over the long term.
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