US Stocks Are at All-Time Highs: Here’s What History Says Happens Next

The Smart Investor07:30

The idea that “what goes up must come down” might feel right in the short term, but it’s simply untrue from a long-term, multi-year perspective. Here are the facts: Since 1950, the US market has made...

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How often does that happen after a market high?\n\nAccording to RBC Global Asset Management, after the S&P 500 hits an all-time high, the probability of a correction is just 9% in the first year, dropping to only 2% by the third year. \n\nBy the fifth year, the index has never been down more than 10%.\n\nThe verdict is clear: the longer you hold, the less likely you are to lose money — and the better your odds of capturing gains.\n\nWhy Markets Reach New Highs in the First Place\nAccording to RBC Wealth Management, in 2025, the S&P 500 delivered 17.9% in total returns, driven by major tech companies such as NVIDIA (NASDAQ: NVDA) and Alphabet (NASDAQ: GOOGL).\n\nThis optimism persists in 2026.\n\nResearch firm FactSet has found that more than six out of 10 companies in the S&P 500 reported 2026 first-quarter (1Q 2026) earnings per share (EPS) that exceeded estimates.\n\nWhile earnings growth could be due to many factors, in my opinion, there are two structural drivers that stand out: AI investments and a supportive US economy.\n\nOn AI investments, Goldman Sachs estimates that the largest cloud companies are pouring more than 90% of their expected cash flows this year into AI infrastructure buildout, amounting to US$670 billion.\n\nOn the US economy, the US Bureau of Economic Analysis reported GDP growth of 2% in 1Q 2026, backed by investments, exports, consumer spending, and government spending.\n\nCommon Mistakes Investors Make at Market Highs\n“Time in the market is better than timing the market” is not just a cliché – it’s backed by the numbers.\n\n\nAccording to Fidelity, if you invested US$10,000 in the S&P 500 index from the end of 1987 to the end of 2025, your initial capital would have grown to US$616,013.\n\nHowever, missing just the five best days since 1987 would have slashed your returns to US$380,479, or 38% less, while missing the best 50 days would have decimated the returns to just US$44,626.\n\nTiming the market might feel rewarding at first, but it’s costly in the long run.\n\nHow about holding on to cash? \n\nContrary to the popular belief that holding cash offers stability in a volatile market, the long-term effect of inflation will certainly erode the purchasing power, even if the face value stays the same.\n\nFundamentals matter as well.\n\nThe S&P 500 forward price-to-earnings (PE) ratio appears elevated at 21, above the median of 18.5.\n\nHowever, the price-to-earnings-growth (PEG) ratio is hovering around 1.0, suggesting that its high growth is still strong enough to justify the higher PE.\n\nErgo, despite the index’s high PE ratio, the current growth is supporting the higher-than-median multiple.\n\nIt’s a Feature, Not A Flaw\nThe market hitting a new high is a feature, not a flaw.\n\nAnd markets aren’t casinos, although short-term traders often treat them as such. \n\nLong-term investors know better and see the underlying innovations driving global efficiencies and productivity.\n\nFocus on owning businesses with durable cash flows, profitability, and credible plans to leverage AI instead of being disrupted by it.\n\nAnother crucial and proven feature of the market is the long-term exponential returns of compounding just by staying invested – something investors often realise only after they’ve missed the best days in the market. \n\nGet Smart: Embrace the Feature\n100 years of historical market price action show that the all-time highs were never danger signals in the past.\n\nAnd that’s not likely to be the case even for now, especially with a fairly valued PEG, made possible by a comparably high growth rate.\n\nThe structural tailwinds, primarily the AI-led innovations and a resilient US economy, remain intact.\n\nLong-term investors need to stay rational – ignore the headline noise on market highs, stay invested in quality businesses, and prioritise time in the market over timing the market.\n\nIt’s not just your imagination – filling up the tank is hitting the wallet harder than it has in years. With oil prices whipsawing and the NASDAQ behaving like a roller coaster, “paralysis by analysis” is a real risk for investors right now. Secure your seat at our upcoming free webinar to see how we manage cash and pick winners while the headlines are screaming “Correction.”\n\nWhat if the current “market turmoil” isn’t a crisis… but a setup?\n\nHistory shows most pullbacks don’t become crashes. The real edge is knowing how to act early. Our FREE report reveals the framework smart investors use. Download it now.\n\nFollow us on Facebook, Instagram and Telegram for the latest investing news and analyses!\n\nDisclaimer: Larry L owns shares of NVIDIA and Alphabet.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.42.2","shortVersion":"4.42.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2636014273","isCrawlerRequest":true}