What Does an “All-Time High” Mean for Investors, Anyway?
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On Thursday, the S&P 500 index, a basket of around 500 of the largest publicly-traded companies in the U.S., closed at a new all-time high. It sounds good, but what does that actually mean?
What all-time highs mean for stocks
During a prolonged bull market, all-time highs are nothing special; a stock index might hit several new all-time highs each week. But the first all-time high after a downturn or period of volatility often has special psychological significance for investors — because it’s a strong signal that the bad times are behind us, at least for now.
For example, the Dow Jones Industrial Average, the other major index of U.S. blue-chip stocks, entered its most recent bear market in September 2022, after dropping more than 20% from its January 2022 high. When did that bear market end? That’s a surprisingly complicated question.
By one definition, a new bull market begins as soon as a major index rises at least 20% from its low — and the Dow crossed that milestone in late November of 2022. But other definitions say that a new bull market isn’t underway until an index notches a fresh all-time high.
When the Dow reached its first new all-time high in Dec. 2023 after the bear market the previous year, that definitively indicated a new bull market — even by the most conservative standards.
More recently, the S&P 500 closed at a new all-time high on Jan. 23. That index notched new all-time highs as recently as Dec. 2024, but has been turbulent over the last month as investors have weighed the unknowns of the new presidential administration.
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What happens to markets after a new all-time high?
From 1926 to 2019, the average bull market for the S&P 500 had a cumulative total return of 339% and lasted about 6.6 years, according to research by First Trust Advisors and Bloomberg.
However, the length and returns of individual bull markets can vary considerably. The longest, which ran from the late 1940s until the early 1960s, lasted 14.8 years and had a total return of 908.5%. The shortest — a brief rally in the midst of the Great Depression in the 1930s — lasted just two months, and had a total return of 91.6%.
The current bull market is less than three years old — so by historical standards, we may not even be at its halfway point yet. That could mean there are many new all-time highs to come in the years ahead. But this bull market could be shorter, for any number of reasons, such as tariffs or higher-than-expected interest rates.
How should investors react to all-time highs?
A new market high can be exciting — but Delia Fernandez, a certified financial planner with Fernandez Financial Advisory in Los Angeles, advised against throwing caution to the wind in an email interview.
“Be a long-term investor, which means don’t risk investing any money that you need in the next five years, since that could be how long it would take to recover from a bear market. That means having an emergency fund set aside in an FDIC-insured bank account, and savings for planned spending in the next year or two,” she said.
“If you feel a bull market is getting a bit old, set aside some cash for future buying opportunities. That’s why setting an investment allocation is so important, and rebalancing regularly to force yourself to buy low/sell high,” Fernandez said.
