Is Another Crash Coming?
It may seem hard to believe but the big S&P 500 Index is just 6% or so from all-time highs.
Other big indexes — like the tech-centric Nasdaq Composite — are already putting in record highs this summer.
That begs the question: How long can stocks stay at those lofty levels?
The answer may surprise you!
Turns out all-time highs aren’t a rare anomaly for the stock market. In fact, they’re the market’s “normal mode.”
The S&P 500 has spent about 60% of all trading sessions within 10% of an all-time high over the past six decades.
Contrary to popular belief, stocks don’t start some kind of crash-countdown timer once a new high-water-mark gets set in the S&P 500.
Have a look at the chart:
In the chart above, trading sessions within 10% of all-time highs are in green. Everything else is in red.
It’s not hard to see why investors are skeptical of record highs in stocks. Between about 2000 and 2013 — formative years for many folks in the market today — new highs were actually pretty fleeting. But zoom out over the much longer term and it’s clear that stretch was the rarity.
Here’s the takeaway: Markets can stay at record highs a lot longer than most investors are comfortable with.
And in the context of 2020’s conflicted market conditions, the takeaway is the same as it’s been for a while now: Keep on buying what’s working.
At this point, new all-time highs in the S&P 500 are just a few trading sessions away. And when they come, there’s going to be a push for some folks to try to figure out when the next crash is coming.
That’s a mistake.
One of my colleagues recently made a tongue-in-cheek comment that says all you need to know about the market right now: “What do we know about all-time highs? We know we don’t usually see them happen in downtrends.”
Some of the biggest gains in market cycles come during the final stages of a bull market. And with the Fed pumping cash into this market at a furious rate, there’s no telling when this bull will start to cool.
Better yet, as I’ve shared, buying what’s working in crisis investing environments is a strategy that can help you skirt 97% of the worst performing stocks in any given month.
That’s good reason to keep your focus on the tech sector this summer!
Jonas Elmerraji, CMT