UBS on all time highs in equity markets – “record highs aren’t the same as market peaks”

Via UBS come some interesting points with the S&P 500 only around 1% from a record high.

The note looks at the S&P 500 total returns (i.e. price gain plus dividends) from 1945, and points out the drawdown % risks from buying at random starting points:

• in 28% of cases an investor buying at a random time would at no future point have seen their investment (including dividends) trade in the red
• in just over 50% of cases an investor would at no point have seen their investment fall more than 5%
• in 19% of cases they would have seen what UBS call a ‘personal bear market’ of a greater-than-20% loss

UBS then cover the percentages when an investor buys at a record high:

• in 32% of cases an investor would at no point have seen their investment (including dividends) trade at a loss
• in 15% of cases would an investor have seen their investment experience a greater-than-20% fall

That 15% compares favourably with 19% when buying was done at random. Of course, this is since 1945, so you may quibble with sample size. Also, this is the S&P 500, other indexes will differ.

UBS add:

• It might be counterintuitive that all-time highs are often followed by further gains
• but record highs aren’t the same as market peaks
• For every 2000 or 2007, when buying in at all-time highs would have subsequently felt like a bad idea, there have been many more times, like 1982, 1992, 1995, 2013, 2016, mid-2020, and early 2024, when investors were rewarded for keeping faith.