{"id":13007,"date":"2024-02-20T16:17:50","date_gmt":"2024-02-20T16:17:50","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13007"},"modified":"2024-02-20T16:17:50","modified_gmt":"2024-02-20T16:17:50","slug":"as-stocks-surge-are-investors-becoming-afraid-of-heights","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/as-stocks-surge-are-investors-becoming-afraid-of-heights\/","title":{"rendered":"As Stocks Surge, Are Investors Becoming Afraid Of Heights?"},"content":{"rendered":"\n

Don\u2019t Be Afraid of Heights<\/strong><\/p>\n\n\n\n

Despite some market volatility experienced over the past week, U.S. stocks \u2013 as measured by the S&P 500 \u2013 are hovering around all-time highs. As I write, the S&P 500 is up over 5% to start the year, and the index has recorded 10 all-time highs so far in 2024.<\/p>\n\n\n\n

That makes investors worried.<\/p>\n\n\n\n

It\u2019s understandable why investors would get jittery here. Stocks\u2019 powerful rally, going on four months now, gives the impression that share prices are getting too frothy\u2014especially considering that interest rates are still high, inflation is still above target, many Americans don\u2019t feel great about the economy, and the geopolitical outlook is one of uncertainty and instability. And yet stocks are surging?1<\/sup><\/p>\n\n\n\n

There\u2019s another point to make, which I think influences investor sentiment, sometimes indirectly. And that is: bear markets and\/or market crashes almost always start with \u2018all-time highs.\u2019<\/em><\/p>\n\n\n\n

This setup can sometimes lead to two responses: 1) investors get out of stocks because of the \u2018fear of heights\u2019; or, 2) investors attempt to time the market top, often with the strategy to \u201cbuy the dip\u201d later. I would strongly urge against both approaches.2<\/sup><\/p>\n\n\n\n

Identify Value in a Strong Market with Our February Stock Market Outlook Report<\/a><\/span><\/strong><\/p>\n\n\n\n

The stock market is running hot, but does that mean everything <\/em>is expensive? Not necessarily.<\/p>\n\n\n\n

This month, I\u2019m offering our February 2024 Stock Market Outlook<\/a><\/span><\/strong>, which reminds investors of the importance of asset allocation while also drilling into earnings projections and outlooks across sectors and asset classes.<\/p>\n\n\n\n

Download your free copy now and get insight on:<\/p>\n\n\n\n

\u2022 The Importance of Asset Allocation
\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want ideas on how to invest in a strong market, click on the link below to get your free report today!<\/p>\n\n\n\n

IT\u2019S FREE. Download the Just-Released February 2024 Stock Market Outlook3<\/sup><\/a><\/span><\/strong><\/p>\n\n\n\n

The first reason, in my view, is that the predominant factor driving the sustained rally is better-than-expected economic and earnings growth, especially what we saw in Q4 2023 and in January data. With 67% of S&P 500 companies reporting Q4 earnings as of February 9, the blended earnings growth rate was 2.9%, with 75% of companies surprising to the upside. Positive earnings and upside surprises are happening despite the ongoing drag from the Energy and Materials sectors, and the stock market\u2019s enthusiastic response mirrors what we saw in 2023.<\/p>\n\n\n\n

The second reason is that historically, all-time highs tend to be followed by more all-time highs. And certainly, more new highs than we\u2019ve seen so far in 2024.<\/p>\n\n\n\n

During the 1990s, the S&P 500 recorded a new all-time high on 12% of all trading days. More recently, there have been two bear markets since 2020, and yet the stock market still reached a new all-time high on 11% of all trading days. It happens more often than many investors appreciate.<\/p>\n\n\n\n

There\u2019s also some data on one-, three-, and five-year returns following all-time highs that may surprise readers. A recent study compared one-, three-, and five-year S&P 500 returns when an investor bought the index on any day, versus buying at all-time highs. Here are the findings:<\/p>\n\n\n\n

\u2022 Invest in the S&P 500 on any day between 1988 and August 2020, and your average cumulative forward returns would have been:<\/em>
o 1-year: +11.7%
o 3-year: +39.1%
o 5-year: +71.4%<\/p>\n\n\n\n

\u2022 Invest in the S&P 500 on days when the index reaches an all-time high, also between 1988 and August 2020, and your average cumulative forward returns would have been:<\/em>
o 1-year: +14.6%
o 3-year: +50.4%
o 5-year: +78.9%<\/p>\n\n\n\n

The data may be surprising but it\u2019s also clear \u2013 average forward returns were better when an investor bought the S&P 500 at an all-time high. There\u2019s a reason the data looks this way. It\u2019s because bull markets generally do not reach all-time highs and then abruptly end. By definition, they continue to reach new all-time highs as a reflection of growth trendlines we see in the economy and within corporate earnings. There are exceptions when a bull market only achieves a handful of new all-time highs, like in 2007, but these are fairly rare.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

My long-term goal is to capture as much upside as the broad equity markets have to offer, and the most effective way to accomplish this goal is to invest alongside growing earnings and an expanding economy. In 2024, I believe we will get both \u2013 economic growth has outpaced expectations on the back of strong consumers and a strong labor market, and Zacks is forecasting a sturdy year for earnings growth, likely over 10% for the full year, in our view.<\/p>\n\n\n\n

In the current environment, I can see how all-time highs might seem like a warning signal, particularly with growing optimism and high valuations in some key areas. But I would caution against seeing all-time highs as a rationale for trying to time a market top. After all, the stock market could very well rally +30% before experiencing a meaningful correction, deeming the strategy ineffective.<\/p>\n\n\n\n

If you want to capture the economic and earnings growth 2024 is poised to deliver, then my advice would be to own stocks <\/em>\u2013 not to buy and sell them based on predictions about market tops and potential corrections.<\/p>\n\n\n\n

And if you\u2019re looking for current market insights to make your investing decisions, I am offering all Mitch on the Market<\/em> readers exclusive access to our Just-Released February 2024 Stock Market Outlook Report4<\/sup><\/a><\/span><\/strong>, which contains some of our key forecasts to consider, such as:<\/p>\n\n\n\n

\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about our market forecasts for 2024, click on the link below to get your free report today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Stocks are rallying, but interest rates are still high, inflation is still above target, and consumer sentiment is negative. Mitch offers his thoughts for investors. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-13007","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13007"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13007\/revisions"}],"predecessor-version":[{"id":13009,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13007\/revisions\/13009"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}