What Do New All-Time Highs Mean for Markets?

Transcript

Aaron Anderson:

I'm going to take some liberties here and break this question into two parts, because what I see today are a couple of things going on. I think we all know that so far, 2025 has been a little bit rocky. We saw a fairly significant correction both in global stock market and in the US stock market. In fact, it was a little bit worse for the US than it was outside of the US. But starting in mid-February up through early April, we saw nearly a 20% drop in the market. So it was a very steep correction. It happened very quickly, bordered on the size of a bear market at least. But then we saw a very quick recovery. And now the market is not only recovered, you know, the drop that it experienced earlier this year, but it's on to new all time highs. And when you get a steep drop followed by a recovery like that, that often leads to an unfortunate occurrence that we see with many investors. Something that we here at Fisher Investments call "breakevenitis." And it's this desire to not go through that again.

You've been through this uncomfortable period. You've seen a lot of volatility in the stock market. And now that you've made up those perceived prior losses, sometimes people say, "Boy, I don't want to go through that again. So, it's time to change my asset allocation." When I say asset allocation, I mean what is the mix of stocks and bonds and cash or other investments in your portfolio? And they feel like just because they've been through this uncomfortable period, that now is the time to take some chips off the table and maybe reduce their stock market exposure. Really, that shouldn't have an influence on your asset allocation at all. What should ultimately drive investors asset allocation are their long term goals and objectives. How long is your money going to be invested and what are you looking to get out of your portfolio? Are you looking to grow it? Do you just want to generate income? What is the end goal for the assets? Is it just to get you through retirement? Are you looking to make some major purchases? Are you looking to pass some on to your heirs and so forth? Those types of considerations really should be the key drivers of asset allocations, not just how you feel about some short-term period in the market.

Because what we see all the time is that the stock market is inherently volatile. You go through corrections. You go through bear markets. And despite all of that, stocks provide very good growth over time. And we don't think anything about going through a steep correction earlier this year derails the reason to own stocks in your portfolio, so long as that's appropriate for your personal circumstances. And so in terms of that "breakievenitis" function, just going through a period of volatility and then a recovery, that really shouldn't change what you're doing within your portfolio much at all.  The other thing, or other fear I should say, that we see happening right now is the question says is the market is not only recovered from a correction, it's also hitting new all-time highs. And that always gets people worried. They've got this fear of heights. They assume that just because you're seeing a new all-time high means there must be another downturn coming at some point. This is just how bull markets operate. Bull markets should hit lots of new all-time highs. Now ultimately you get to one that precedes a downturn in the market.

But just because you're at a new all-time high doesn't mean that's imminent. In fact, as I said, we'd hope we see lots of new all-time highs until ultimately you get a point where either investors become too optimistic, they become euphoric, or there are big problems that are brewing in the economy or in markets. We don't see any of those happening today, but that's the time to start getting worried about a downturn in the market. The fact that the market is hitting an all-time high has no bearing at all whatsoever as to what the market is doing going forward. As I said, generally we expect to see lots of new all time highs until ultimately you get to one that might precede a downturn. We don't think that's very likely today though. So, nothing to be fearful about in terms of the market just hitting new highs, we'd hope for and expect that.

And on the "breakevenitis" side of things, I certainly would encourage all of you to not base your asset allocation decisions just on what's happened in the market over the last few months. That's not why you're investing. You're investing to put yourself in the best financial situation possible over your investment time horizon, not just react to what's happened over some short-term time span right behind us.

Ken Fisher:

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