Thursday, August 11, 2016

History Suggests Record Equity Market Highs Do Not Mean Investors Should Sell Stocks

In late January and then in mid February I wrote posts noting our firm's positive view on the equity markets (here and here). It was a difficult position to take at the beginning of the year with the market in decline. As of the close today. and the first time since 1999, the S&P 500 Index, the Dow and the Nasdaq hit highs on the same day. Both the Dow and S&P 500 Index are up nearly 7% year to date. A number of high profile (often bearish though) investors/strategists are calling for a severe market correction. Knowing foresight is never perfect, should individual investors get out of equities now? History does not guarantee the future; however, the future tends to rhyme with the past.

LPL Financial Research published an interesting report today that addressed the question of, should an investor sell everything? Included in the report is a brief discussion on sentiment as well. A couple of worthwhile bullet points from the report:
  • There have been 40 other times the S&P 500 was up more than 6% for the year with 100 days to go (like 2016), and incredibly, the rest of the year is up 5.3% on average and higher 90% of the time.
  • Thus, a strong start to the year has led to even stronger returns for the rest of the year.
  • What about the full-year returns? Only once in history has the S&P 500 been up more than 6% with 100 days to go and finished red, and that was in 1929 (emphasis added).

The equity market will certainly experience some pullbacks; however, the positive economic data noted in earlier posts along with some not so bullish investor sentiment today, suggests this market seems to want to trend higher into year end.

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