Bull Market Emotions Of Chasing New Highs
On January 19, 2024, the S&P 500 closed at a new all-time high of 4,839.81 and then proceeded higher for the next five trading days. When you hear about all-time market highs, do you feel an urge to check your investments to see how much money you made? On the flip side, some folks worry that the market will soon be overpriced and begin to fall. If you experienced either of those sentiments, you're not alone. Investors often have conflicting emotions regarding the high prices of stocks. To manage feelings when making investment decisions, remember that the media breeds fear and greed; we expect the market to go up, and the rules of gravity do not apply to stock prices.
Hunted By The Media
Imagine financial reporters chasing a bull down Wall Street, and you'll get a good idea of the relationship between the media and the stock market. News outlets often fuel fears, worries, or greed because it is their job to get attention and prove to advertisers that people are looking at their content. For example, this week, the Wall Street Journal ran a headline stating, "Stocks Are at Record Highs, but Things Will Only Get Harder From Here," evoking a fear that the stock market will not go much higher. As the bull run continues, the media will speculate on how long before the drop, especially if it continues longer than four years (the average S&P 500 bull market period). But we are fresh into this bull market, which began in October 2022. Since the 1950s, the U.S. broad equity market has hit new highs more than 1,110 times along the path to its current level, and we can expect that trend to continue. So, instead of hunting the bull down and waiting for its eventual demise, we can enjoy the ride as it runs its course.
We Expect The Market To Go Up
Over time, we expect our stock holdings to increase but fear painful losses. That mental conflict can provoke hesitation when making new investments, as the traditional advice of "buy low, sell high" suggests that investing in stocks at a peak is a guaranteed disappointment. However, stocks are not physical objects that require constant effort to stay afloat. They represent a perpetual claim on a company's earnings and dividends. Businesses constantly seek capital to produce desired goods and services, and companies reward investors for providing the necessary funds. And companies will find ways to make money.
Investors should not be overly excited or worried about record-high prices but instead remain neutral. Historically, buying at record highs produces similar returns to buying stocks after a significant decline.
What Goes Up
Isaac Newton's universal law of gravity insists that with every rise, there must be a downfall, which can lead us to tinker with our investment portfolios. However, our attempts to enhance outcomes by trading at market highs may have negative consequences. The rise in share prices is not fighting gravity because the stock market does not have mass, so the law need not apply.
While the recent surge in the S&P 500 and subsequent media attention has amplified fear and greed to attract attention, historical data indicates that market highs are not necessarily cause for alarm. The expectation of continuous market growth is rooted in the perpetual nature of stock investments, as companies consistently seek capital and generate earnings. Therefore, rather than succumbing to excitement or apprehension, maintaining a neutral stance toward record-high prices is advisable. Attempting to time the market based on the fear of a looming downfall may not yield favorable results, as stock prices do not adhere to the laws of gravity. Ultimately, the key lies in prudent, long-term investment strategies rather than reacting impulsively to market fluctuations. If you need professional assistance managing your financial portfolio during good and bad markets, CLICK HERE to schedule a call with an advisor at Hurlow Wealth Management Group.