Investing in Stocks At All-Time Highs

Posted On December 31, 2020 11:58 am
By: Dividend Sensei

By Ben Carlson

I feel pretty comfortable in saying 2020 has to be the only time in history where the U.S. stock market has hit 30 new all-time highs (and counting) during the same year as a pandemic and the worst quarterly GDP drop in history.

Since reclaiming the highs from 2007 following the Great Financial Crisis, the S&P 500 has now seen more than 270 new all-time highs. That’s roughly 14% of all trading days in that time where stocks have closed at an all-time high.

Over the past 100 years or so the stock market has hit all-time highs on around 5% of all trading days. So it makes sense those new highs tend to cluster during a bull market when you have droughts as we experienced from October 2007 through March 2013 with nada.

This is one of the reasons investing at all-time highs can play head games with you. Invariably, one of those all-time highs will be THE high, at least for a while.

You can see just from eye-balling a long-term chart of the S&P 500 that there have been extremely long wait times where the market was underwater from a previous peak:

These are the longest droughts to reach new highs from prior peaks:

This shows how many years it took to reach new highs from a previous peak, with the obvious loser here being the Great Depression. It is worth pointing out these are price levels only and do not include dividends reinvested.

By contrast, it took just 6 months from the prior peak in February to hit a new peak for the S&P 500 in the roundtrip this year.

Just to complicate things a little more, a recent report from JP Morgan looks back at the past 30 years in the stock market to show how investing at all-time highs isn’t as scary as it seems.

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About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.