What to do when the market is "too high"

As I (re)write this, the S&P 500 has once again hit ANOTHER record close of the year (it's 40th) and there's still 3 more trading months to go! At first, I was impressed with the fact that a cumulative total of 4 weeks out of the year have been the highest trading days of the market...until I dug further.

Prior to 2024, the market only hit a record high once in 2022 and zero times last year. However...the S&P hit 70 "all-time highs" in 2021, with 8 prior years of double-digit records.

When is the all-time high THE high?

Let's think back to 2017 when the S&P just closed at its 62nd record day of the year! This came after 4 consecutive years of new highs. How many people thought that was the end of the bull market?

I'm certain, if given the opportunity today, investors would do anything to be able to go back and invest MORE money then! (The S&P 500 is up over 180% since that 2017 "all-time high.")

Time-in vs timING

It goes without saying that the longer the investment time frame, the greater the chances of a positive outcome. Over the past 96 years, through December 31, 2023, 94% of all rolling 10-year periods have produced positive returns. And guess how many all-time highs there were during that time frame? Well over 1,000!

What's next?

While it is not necessarily the time for fear, there are some prudent steps investors can take while investing when the S&P is at or near all-time highs.

1. Look to diversify out of the S&P 500. Although owning a basket of 500 names does provide diversification, the holdings are market-cap weighted, so you may not be as diversified as you might think (or want).
2. Rebalance to your target asset allocation model, especially if some positions are over-weighted more than you're comfortable holding. Just because a sector has underperformed, doesn't necessarily mean you shouldn't own it.
3. As the Fed continues its rate cutting, now may be the time to look at sectors that have historically done well during these cycles. Mid & small cap, real estate, utilities & financials to name a few options.
4. On the same theme of the Fed's rate cutting, now may be the time to lock in what may be historically high rates in fixed income. Not only will you be able to earn a higher income stream, but the inverse relationship of how rates and bond prices move may be favorable for price appreciation as well.
5. As you trim back on your S&P holding, look to harvest some losses as you shift assets around. I went into greater detail about a tax-loss harvesting strategy in my last blog post: It's not what you make, it's what you keep.

While the S&P 500 continues to hit all-time highs, we remain cautiously optimistic and recommend that investors focus on what they can control: rebalancing, tax strategies, and asset allocation.

No one knows for certain what the next 6 days, 6 weeks, or 6 months look like...but building and then sticking to your #FinancialPlan should be the cornerstone of any investment decisions that you make.

-Jason

Any opinions are those of Jason Macaluso and not necessarily those of Raymond James.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.