What could stock market’s new record high mean for investors?

The S&P 500 Index hit a new record,¹ a milestone that, in most years, might barely register as news. After all, in 2024 alone, the index set 57 record highs, averaging nearly one every four trading days.² But the new market high is noteworthy. Not because it happened, but because of when it happened. Few investors likely imagined we’d be back at record levels by mid-year, especially after the market endured a sharp 20% decline from its February 19th peak to the morning of April 9th.³ That swift and deep correction rattled confidence and sparked fears of a broader downturn. And yet, here we are, back at new highs.

What does a new stock market high tell us?

“Only small minds are impressed by large numbers,” noted author Sir Arthur C. Clarke. A new market high isn’t a sign of danger, despite what some may fear. It’s often quite the opposite. Because the market is a leading indicator of the broader economy, a strong market suggests a resilient economy. And those expectations could lead to additional market highs. Let’s put these large numbers into perspective.

The stock market represents growth expectations

Stock market averages are not mean reverting. In other words, they don’t return to a long-term average. Rather, they represent growth expectations for the US and the world. If you believe that conditions in the world will continue to get better for most people and that innovative businesses will continue to thrive, then you should expect markets to trend upward over long periods.

New highs don’t say much

New highs offer very little information in and of themselves. It’s far more interesting to compare the price of an index to the fundamental characteristics (earnings, sales, book value) of the companies in that index. While the broad S&P 500 Index may currently be trading at extended valuations compared to its own history, much of it is concentrated in the top names.⁴ The same 500 companies, equally weighted, is currently trading at a valuation that is roughly in line with its longer-term average.⁵

New highs are common

The S&P 500 Index has hit over 1200 new highs since its 1957 inception.⁶ That’s roughly the equivalent of a new high every two weeks. History suggests that investors should expect the market to ascend to many new highs over their lifetimes, even if the path isn’t always a straight one.

Investing perspective to keep in mind

Market high investing

Should investors avoid putting money into the markets when it’s at a high? History doesn’t support that view. In fact, from 1989 to 2024, investing when the S&P 500 reached a new all-time high has seen higher returns than investing when the market wasn’t at a high. This can be seen when comparing annualized returns for one, three, and five years.⁷ Momentum can be a powerful force in investing.

Timing the market

Timing the market rarely works. Investors acting out of fear or greed tend to make bad decisions at inopportune times. Having a plan and sticking to it is generally a better approach. Missing out on the market’s best days can meaningfully reduce returns. Missing just the 10 best days over the past 30 years would’ve halved your gains, while missing the 50 best days would’ve resulted in negative returns when adjusted for inflation.⁸