New Market Highs and Positive Expected Returns

Posted by Chad R. O'Connell AIF QPFC | Jan 12, 2017 12:10:59 PM

There has been much discussion in the news recently about new nominal highs in stock indices like the Dow Jones Industrial Average and the S&P 500.

When markets hit new highs, is that an indication that it’s time for investors to cash out? History tells us that a market index being at an all-time high generally does not provide actionable information for investors. For evidence, we can look at the S&P 500 Index for the better part of the last century.

From 1926 through the end of 2016, the proportion of annual returns that have been positive after a new monthly high is similar to the proportion of annual returns that have been positive after any index level. In fact, over this time period almost a third of the monthly observations were new closing highs for the index. Looking at this data, it is clear that new index highs have historically not been useful predictors of future returns.

Given that the level of an index by itself does not seemingly have a bearing on future returns, you may ask yourself a more fundamental question: What drives expected returns for stocks?

To continue reading, please click here.

For more information, please contact your Dopkins Wealth Advisor or call 716-634-8800.


Source: Dimensional Fund Advisors LP. Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful. All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

 

Topics: wealth management, S&P500, stock markets, election, Dow Jones, volatility, 2017, return on investment

Join Our Mailing List


Chad R. O'Connell AIF QPFC

Chad manages the firm’s retirement plan services group, which focuses on investment management, consulting and fiduciary governance services to corporations and not-for-profit entities. In addition, Chad also provides financial services to high net worth individuals and business owners.

More blogs from Chad R. O'Connell AIF QPFC