I make no claim to be able to predict the future. And I certainly do not imply that this pattern will so favorably continue, but looking at the data can assuage fears: investors should not look to sell every time the market goes up. The markets are not subject to the laws of gravity.
As I said in an earlier blog post about the Dow hitting 20,000, it is not, generally speaking, a good idea to sell when stocks reach a new high. Neither new highs nor numerical milestones signal market peaks and future market declines. Historical evidence suggests that future returns are likely to be better than average at market highs, albeit with greater volatility.
Also of note, the current market high is a phenomenon specific to U.S. stocks, meaning that global, multi-asset class investors may not feel as euphoric as those who are predominantly in U.S. equities. While new highs have some investors concerned about future markets, they should treat these times like any other—focus on their ability to tolerate risk and stick to a well-diversified investment plan. Odds favor the consistent investor.
At the time of the writing, the S&P 500 (2,898), NASDAQ Composite (8,030) and Russell 2000 (1,728) were at all-time highs. The ACWI (525) global index, Bloomberg Agg (2,024) bond index and the New Frontier NFGBI (258) balanced index were not.
Robert Michaud is co-founder and chief investment officer at New Frontier Advisors.