Fintech executive, writer, math geek, and investment systems developer. Founder and CEO of Altruist and Founder of FormulaFolios.

The Dow Just Hit an All-Time High - What Happens Now?

The Dow Just Hit an All-Time High - What Happens Now?

Yesterday (and now today) the Dow Jones Industrial Average hit a new All-Time high.  This new high comes after the previous high was hit in October of 2007, about 5 1/2 years ago.

Many people wonder, what happens next?

I was wondering the same thing, so using my extreme geekery, did a little research on past market highs.  What I wanted to know, was what happens the next 12, 24, and 36 months afterward (historically speaking).

Marty McFly would be happy to know that new all-time highs are mostly very good for investors. No Delorean Necessary.

Marty McFly would be happy to know that new all-time highs are mostly very good for investors. No Delorean Necessary.

For this study, I looked only at new market highs when it's been at least 12 months since a previous market high.  This is because sometimes a new market high will last for a few months, then have a single month pull-back, only to reach another series of market highs.  Those types of moves are somewhat irrelevant to this weeks high, as this one is the first in multiple years (rather than a continuation of new market highs).

Using this simple structure, since 1960, we've had 10 similar occurrences.  10 times where the market had been lower than it's previous high for at least 12 months, but broke out into a new all-time high.

Here's what happened in each of those previous 10 occurrences:

[table id=20 /]

How About That?  New All-Time Highs are Actually Good News (Mostly).

As you can see from the table, it's mostly been pretty good.  While the sample size is small (only 10 occurrences), 80% of the time the market is higher a year down the road.  70% of the time it's higher 2 and 3 years down the road.  On average, the next 3 years return an annualized 5.69% (compound average).

Of course, just because something happened in the past, doesn't mean it will happen in the future.  And those "worst historical returns" are pretty awful.  It is encouraging though - especially if you thought new all-time highs historically resulted in poor market conditions in the future.  That's not the case at all - quite the opposite actually.

Cheers to new all-time highs,

Jason Wenk

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