New All-Time Highs For the S&P 500…Now What?

As I am sure you have seen, the S&P 500 closed at a new, all-time high yesterday. While the milestone will be rightfully trumped by business and other media outlets, it is important to get a sense for what this could mean for the market going forward, which is what we really care about as we think about making investment decisions today.

In this chart of the S&P 500, the green arrows depict all of the all-time closing highs for the index just in the past two years. What jumps out at me is that the highs tend to come in clusters before a pullback in the market resets the clock. 

But is two years really a long enough timeframe? I would argue no. I would want to see more data. Thankfully, with the help of Optuma, we can look further back in time and gain some information about how the market is likely to perform over the next one, three and six months. 

Since 1950, there have been 1,288 closing highs that have been equal to or exceeded the previous all-time closing high.

One Month Performance

After a new all-time closing highs, the S&P 500 is higher one month later, 59% of the time for a median return of 0.60%.

Three Month Performance

After a new all-time closing high, the S&P 500 is higher three months later, 68% of the time for a median return of 2.05%.

Six Month Performance

After a new all-time closing high, the S&P 500 is higher six months later, 77% of the time for a median return of 5.21%.

So odds favor a continuation higher for the market with the statistics improving the longer the time period that we move forward. 

While it is encouraging to see the market trading at new highs, where you are invested in the market can have a big impact on your performance. For instance, over the past three months, the market has been led higher by a handful of industry groups. A quick sort of the three month performance shows us that Homebuilders (XHB), Retail (XRT), Transportation (XTN) Semiconductors (XSD) and the Banks (XBE & XRE) have been doing much of the heavy lifting. 

Conversely, if you have been investing in Energy (XES & XOP), portions of Health Care (XHE, XBI & XHS) or Software (XSW), your performance may not be as bullish as the new highs would have you believe.

Looking at the ETF Ratings for these groups can help us determine if they are likely to continue to outperform the broader market. With the S&P 500 in an uptrend and trading at new-all time highs, the industry groups with bullish or better ratings are likely to continue to provide opportunities for investors who are trading with the prevailing trends. It’s always easier to swim with the tide.  

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