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Despite high inflation, delta, omicron, and politics as usual, the stock market managed to make all-time highs near the end of 2021.

However, instead of celebrating, market highs tend to cause anxiety for many investors. Why? Because we tend to think “what goes up must come down.”

But what does the data say about market returns in the years after reaching all-time highs?

  

Source: Dimensional Fund Advisors

For illustrative purposes only. New market highs are defined as months ending with the market above all previous levels for the sample period. Annualized compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market highs observations. There were 1,139 observation months in the sample. January 1926–December 1989: S&P 500 Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. January 1990–Present: S&P 500 Index (Total Return), S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

You may be surprised to learn that the average returns one, three, and five years after a new month-end market high are similar to the average returns over any one, three, or five-year period.

A new stock market high does not mean that a crash is imminent; nor does it mean future returns will automatically be lower. Stocks are priced to deliver a positive expected return for investors, so reaching record highs regularly is the outcome one would expect.

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