Why, When, and How to Buy New All-Time Highs

By TradeSmith Research Team

Listen to this post
Bears just can’t catch a break…

The media said a bearish tsunami was coming for markets. Instead, portfolios soared to new highs.

But that hasn’t stopped the “#stockmarketcrash” chants all over social media…

It seems the doomsayers are casting doubt on the new all-time high in the S&P 500.

Which got me thinking…

Are we doomed?

OR… is a bigger beartrap set to cause more pain for the naysayers?

Today, we’re going to test out that thesis and see if a long-awaited new high is something to fear… or cheer.

As always, we’ll look to cold, hard data for clues.

We’ll even zero-in on a red-hot sector… all based on strong historical evidence.

But first, let’s have a look at the overall landscape.

New Highs Are Finally Here

Many thought we’d never see the day when stocks eclipsed the old 2022 highs. But after two long years, totaling 513 trading days, we finally did it.

On Friday, the S&P 500 closed at its highest level ever: 4,839.81.

Source: YahooFinance
After this new milestone, you’d think there’d be celebrations in the streets.

Yet, I’m seeing the opposite. People are still worried.

Bears claim that, given how long it’s taken for stocks to make a new high, we should be bearish on stocks.

I’ll admit, I almost found myself second-guessing the latest rally… That is, until after I tested the theory.

For this study, I asked a simple question, “what happens after the S&P 500 makes a new high, but the prior year didn’t see any new highs?”

Essentially, I wanted to find periods that echo today’s environment — when more than a year passes before we see a new high.

Turns out, not counting the most recent high, this has happened four times in the last 34 years.

Bears may want to look away now… because the forward returns are even better than the long-term averages:
  • 6 months after a new high, the S&P 500 lifts 6.8% on average.
  • And 12 months later, stocks ramp 14.8%, well above the long-term average of about 9%.
Of the four prior instances, only one, 2007, saw losses over the next year.

But keep in mind, that drawdown included the soon-to-follow Great Financial Crisis… the worst meltdown in recent memory.

I’ll go out on a limb and predict that’s not in the cards for 2024.

With a Federal Reserve that’s done raising rates, and a soft landing now pretty much on lock… I’m more in an offensive mindset.

That led me to take today’s study a step further.

I wanted to understand which sectors perform the best in this scenario. Here’s what I found…

The Best Sectors to Buy on the Next Pullback

When we single out the four historical instances, we learn that Technology towers above all with an average 12-month gain of 24.5%.

That’s followed by Health Care, with a 19.6% surge.

Even Industrials, Materials, and Financials outperform the market a year later:
This is risk-on action, folks. Only Communication Services — stocks like AT&T (T), Verizon (VZ), and Comcast (CMCSA) — saw a zero-return profile. Every other sector saw gains.

So does that mean go out and buy stocks hand over fist today?

It might surprise you to hear this, but probably not…

Stocks are heavily overbought, and markets are due for a healthy pullback in the coming weeks.

So be patient and focus on the best-of-breed companies out there.

Many are in the tech space, like I showcased earlier this week.

You’ll want to have your list ready when the buy-the-dip opportunity surfaces.

Don’t follow the crowd and fear new highs. Lean into historical evidence, the TradeSmith way.


Lucas Downey
Contributing Editor, TradeSmith Daily