Should You Time The Market?

  • The S&P 500 Index recently breached 5,000 for the first time and has hit new all-time highs multiple times in recent trading days.
  • Intuition would likely say that new all-time highs for stocks would portend lower returns going forward due to elevated valuations, a peak in earnings growth, or maybe frothy investor sentiment.
  • It’s common for investors to be nervous about putting new money to work with markets at or near all-time highs.
  • Data shows that this worry may be misplaced, as investing in the S&P 500 at all-time highs led to higher returns over time than if money was invested on days when the index was not at a peak (see chart).
  • The usual caveat that past performance does not guarantee future results is especially true here. The dominance of US mega-cap tech companies that have driven indexes should slow at some point, but has been costly to bet against for longer than many expected.

Sources: JPMorgan;

A Wealth of Common Sense;

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