Stocking Up: Should You Buy Stocks on Record Days? A Bursting Bull Market Explained
Stocks surge in the market: is it the right time to invest?
Here's the lowdown on the go-go world of stocks. Over the past two years, it's been one rollercoaster ride - but mostly a climb upwards. The tech-hype-driven S&P 500 has clocked a whopping 57 new record-setting trading days so far this year, as of early December. The DAX, Germany's beloved index, nudged past 19,000 points in September and cruised past 20,000 a couple of months later. But when will this never-ending party end? Are we at the peak? Every new record high sends chills of a looming correction. But should you hold off on buying stocks if the market's about to tumble?
Let's dive in and see what the stats say!
Your Timing’s Not My Timing: The Unimportance of Timing for Stock Purchases
Historically, the stock market has shown an intriguing trend. Between 1970 and today, investing on days when the S&P 500 hit a record high has yielded an average cumulative five-year return of 78.9%. Wisely investing on any other day only fetched a return of 71.4%. Yeah, you heard it right - even a blind squirrel finds a nut once in a while!
But waiting for just the right moment to buy doesn't seem to be a brilliant strategy either. Data from JPMorgan analysts reveals that investments made on days when the market slammed its brakes on the all-time high fared worse over a year or two, compared to investments made on days of a fresh record high since 1970.
Timing is Everything, Right? Sometimes, Sometimes Not!
All this data should hammer home one message - buying stocks in the peak of a bull market isn't inherently a terrible decision. Granted, nobody has a crystal ball, but especially for long-term investors, the exact day of purchase shouldn't weigh heavily on your mind. Statistics often show that these "seasonal" effects even out over time and only have a minor impact on the overall return.
Final Thoughts: Timing is Rarely Everything
Waiting for a market dip might feel like a safer move, but buying stocks on record days may just be the beginning of a bullish trend. As long as you have a long-term strategy, keep your eyes open for encouraging market breadth indicators like cumulative volume breadth (CVB) and a healthy number of stocks hitting new highs. Happy investing!
Buying stocks when the market hits record highs, as shown by historical trends between 1970 and today, has yielded an average cumulative five-year return of 78.9%, which is higher than the return of investing on any other day. On the contrary, investments made on days when the market experienced a decline from its all-time high have performed worse over a year or two, compared to investments made on days of a fresh record high since 1970.
