The paradox of market peaks

The idea of investing when prices are at their peak can feel counterintuitive. Investors may recall the age-old advice of "buy low, sell high," leading many to hesitate when indices are setting new records. However, the alternative—waiting for a significant market correction or a “low”—is notoriously difficult in practice. During a downturn, the pervasive negative news and fear often lead investors to expect further declines, making the act of investing emotionally challenging. As the renowned financial writer Morgan Housel wisely observes, "all past declines look like an opportunity; all future declines look like a risk."

Furthermore, in many instances when the S&P 500 reached a new high, the index didn’t drop more than 5% below that level again. In fact, roughly 29% of all-time highs experienced by the S&P 500 since 1950 have earned a spot in this category¹. For investors on the sidelines during those all-time highs and waiting for a market dip, many would have never seen a better entry point and would have missed their chance to buy in at a lower price. Said differently, it has been fairly common that a new market high ends up being also being a “low” at some point in the future

Why all-time highs can feel unsettling

For investors who might have missed the full extent of a previous market rally, the thought of re-entering at a high point can be concerning. This hesitation is often rooted in a common mental shortcut called the gambler's fallacy that incorrectly assumes past performance influences future outcomes. This mindset, which suggests a downturn is more likely, or even inevitable, after an extended period of growth, is not applicable to financial markets. Market movements are not based on a series of random events but are instead driven by fundamental economic conditions and investor sentiment.

History consistently demonstrates that market strength frequently begets more market strength. All-time highs rarely emerge without cause and are often a reflection of underlying economic health, corporate innovation, growing earnings, and robust investor sentiment. Consequently, a new all-time high frequently sets the stage for even more highs to come.

Examining the numbers

A closer look at historical data reveals that all-time highs are a regular feature of market cycles, and they tend to cluster together. Since 1990, the S&P 500 has, on average, experienced approximately 22 new all-time highs each year. While there have been periods with fewer highs—notably after the dot-com bubble in 2000 and the Great Financial Crisis of late 2007—these were exceptional periods marked by prolonged and significant bear markets.