On Monday, the S&P 500 (^GSPC) closed at its 30th record high of the year. Investors thinking about selling may want to think again. Tim Urbanowitz, head of research and investment strategy at Innovator Capital Management, told his team, “All-time highs are not a catalyst for selling. They never have been, and never will be. In fact, the opposite is true. They tend to be very good times to invest in the stock market.”
Watch the video above to hear Urbanowicz discuss what the data says about stock price movements after hitting all-time highs and advise investors on where to put their money.
For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination Overtime.
This post was written by Stephanie Mikulich.
Video Transcript
Interesting magazine headline.
I’d love to hear your thoughts on Tim.
The headline says this, right?
Investors are concerned that market calm may not last long with stock indexes hitting record highs.
Market volatility is said to be exceptionally low.
Tim, how do you feel about that to me in this calm state?
How nervous should you be?
Well, it’s been an incredible rally, with the S&P 500 hitting a new all-time high every four days so far this year, on average.
So, this is a big deal and it’s actually the No. 1 conversation we’re having with advisors right now.
Although everything is going well, everyone is starting to get a little nervous.
I feel a little nervous.
Yes, that’s about it.
And one thing we keep telling our advisors is that all-time highs are not a trigger for selling.
Never has it been, and never will be.
In fact, quite the opposite is true.
It tends to be a very good time to invest in the stock market.
Historically, if you look at all-time highs, the average return in the 12 months following that all-time high has been around 12%, with a positive return 77% of the time.
got it.
That’s important.
Also, these all-time highs tend to come together in clusters.
So what we’re currently seeing every four days is not unusual.
From 1989 to 2000, the all-time high was updated every 9th business day, and from 2013 to 2022, the all-time high was updated every 8th business day.
So does that mean it won’t be a trigger to exit the market?
It has to go to market.
It’s a good time to invest.
Despite your concerns, you have to stay.
got it.
So let’s look at it from the other side of it: things tend to go up over and over, so why should you get involved in that?
That means taking a long-term view.
People often say here that stock prices will go up, and I say that a little bit tongue-in-cheek.
But what are the fundamental reasons why people should still continue to invest?
Well, I think the underlying reason is a little different.
I’ll get to that in a bit, but for now, I think the next three to four months are going to be all about this perfect deinflation story.
This pause is a very profitable period for stock investing.
It all depends on investor sentiment.
Everyone gets excited.
Inflation has been a hot topic for a long time.
Once we start to see some relief and it looks like the Fed is going to cut rates, that tends to be very profitable.
And even if the fundamentals aren’t great going forward, if you look back at the last four hard landings, there was a period when short-term interest rates peaked and you could always make a profit.
In fact, the S&P 500 rises an average of 20% after short-term interest rates peak, but in some cases has risen as much as 47%.
So regardless of what happens next, regardless of what the fundamentals are, regardless of what the economic outcomes are.
Investors are always looking at the deflation narrative, so it’s very important that it all ends at this point.
But after three or four months, things start to get a little cloudy.
Tim, let me ask you this: If you want to look at more than eight stocks, is your advice to stick with what’s worked so far?
Is that something you tell your clients?
So this is a large cap, tech A II, and I think it has to be at this point for a couple of reasons.
One is, I don’t think the interest rate debate has been resolved in the way that the market has, but is it priced in at this point?
So, you need to be careful about that.
I think that’s true for a lot of the big tech companies.
The Mag 7 name is doing very well.
Even though interest rates are rising, if you look at that subset of securities, they’re up 75% since the rate hike cycle began, so it’s clear that rising rates, high rates, are not an issue for these stocks.
So you’re really protecting yourself in terms of that risk, but you also have to remember the other side.
What will ultimately happen when inflation falls remains to be seen.
Deinflation is happening, right?
Companies have raised prices as prices have risen, allowing them to keep margins high and therefore profits high.
Now that is starting to change and they will have to look for other ways to protect their margins and revenues.
And that means those layoffs could start to have an impact on the economy?
So I’ll be looking at other small caps in the market.
Yeah, it looks cheap.
If there’s a soft landing, that might be a good place for them to be, but that’s not a certainty: They’ll be hit by rising interest rates, and they’ll be hit if there’s a recession.
So I think it’s much safer to stick with the larger caps that we’ve seen perform well so far.
So there’s research that shows the premiums and returns that these names are getting may start to decline here as well.
Do you think that’s a risk?
I think over the long term, it certainly has potential, especially when you look at a stock like NVIDIA, which I assume will maintain a 70% return going forward.
In a non-monopolistic society, that would be very difficult.
right.
So I think we need to broaden our perspective a little bit, but in the short term, I think we need to stick to what has worked so far, with risks on both sides.
Tim, I’ll share with you this theme that’s bubbling up right now.
They realize that their customers might be a little anxious.
Another topic that interests me is that we are approaching the first debate of the election year.
Has it now heightened to the point where our clients are asking more about it?
If so, what’s your advice, your guidance?
We’re starting to see that pop up more and more.
Typically, if you look at 2016 or 2020, spikes in volatility occur later in the year.
So my guess is that we’ll see that surface in the coming months, but either way, we still have questions from clients that, obviously, there’s going to be a lot of variation in the policies.
You know, traditional energy companies have been doing well under the Trump administration, but green energy and other clean energy companies have actually struggled a little bit.
What we’re encouraging our clients to focus on right now is consistency in what both administrations look like.
And one thing that has remained consistent throughout the past two presidential terms is that they like to spend money.
And, you know, this is going to continue to put pressure on interest rates and it’s going to require a focus on spending, which we think is going to help the economy continue to grow.
So we need to focus on what we currently know.
And as we get closer to Election Day, we’ll have a better idea of ​​what the polls are showing.
We expect to see greater uncertainty and volatility in the future.
