Stocks are at record highs: Why you should stay invested

On Monday, the S&P 500 (^GSPC) notched its 30th record close of the year. For investors who may want to sell, they may want to reconsider. Tim Urbanowicz, Head of Research & Investment Strategy at Innovator Capital Management, says he is telling his team that “the all-time high is not a catalyst for a sell-off. Never has been, never will be. In fact, quite the opposite. It tends to be a very good time to be invested in the equity market.”

Watch the video above to hear what Urbanowicz says the data shows about how stocks perform after touching all-time highs and where he is advising investors about where to put money to work.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Stephanie Mikulich.

Video Transcript

Interesting headline in the journal.

I want your take on Tim.

It says here’s the headline, right?

Investors fear long stretch of calm in markets can’t last with stock indexes at record highs.

They say market volatility has been exceptionally low.

What do you make of that, Tim give me with all this calm.

How nervous should I be if at all?

Well, it’s, it’s it’s been an incredible run and on average right now, we’re hitting an all new, all time high every four days on the S and P 500 this year.

That is, that is significant and this is actually the number one conversation we’re having with our advisor right now.

Everybody’s getting a little bit nervous even though it’s all good.

There’s this undercurrent of uh some nervous.

Yeah, it feels like that.

And what we continue to remind our advisers is that the all time high is not a catalyst for a selloff.

Never has been, never will be.

In fact, quite the opposite.

It tends to be a very good time to be invested in the equity market.

If you look at all time highs historically, the average 12 month return that we see after that all time high is right around 12% 77% of the time we’re positive.

OK.

So that’s significant.

You also tend to see these all time highs, they tend to be clustered together.

So what we’re seeing right now every four days is not abnormal.

You look at the stretch from 1989 to 2000, every nine trading days, we saw a new all time high 2013 to 2022 every eight trading days.

So not only is it not a catalyst to be out of the market, right?

You have to be in the market.

It’s a good time to be invested.

You gotta stay in despite the concerns.

OK.

So let’s take the other side of that then why should you be in despite besides just like things tend to go up which they do over, over even.

Story continues

I mean, you look over the long term as well.

Stocks go up as we like to say here, kind of tongue in cheek.

But what are the fundamental reasons that people should be still invested?

Well, I think the fundamental reasons are a little bit different.

We’ll get to that in a second, I think right now, the next 3 to 4 months, it’s all gonna be about this immaculate disinflation narrative.

The pause is a very profitable time to be in equities.

It’s all about investor sentiment.

Everybody gets excited.

We it’s been all about inflation this whole time.

Once you start to see some relief, once it looks like the fed is gonna get to that cut, it tends to be very profitable.

And I will say that even when the fundamentals are not going to be good, moving forward, if you look at the last four hard landings, there has been a time when short term rates peak where it’s always profitable begin.

In fact, the S and P 500 runs an average of 20% after short term rates peak up to 47% in some instances.

So regardless of what’s next, regardless of what the fundamentals might look like, regardless of what the economic outcome might be.

When it’s all said and done right now is very important because all investors are always focused on that disinflation narrative.

But it gets a little cloudy after that 3 to 4 month stretch.

Le let me ask you, Tim, um, if you want to see over eight equities, is your advice, then just stick with what has been working.

Is that what, you know, you’re telling clients?

So, so it’s large cap, it’s tech A II I think have to at, at this point in the, in the game for, for a couple of different reasons.

One we don’t think the interest rate uh conversation is in the bag like the market, has it priced in right now.

So you have to be cautious on that front.

I think a lot of the, the big tech names.

Mag seven names have been doing very well.

Despite rising interest rates, I look at that subset of securities, you’re up 75% since the rate hike cycle starts clearly, rising rates, higher rates is not an issue for these names.

So you, you really hedge yourself from that perspective with that risk, but you also got to remember the other side.

We still don’t know what the the end game is gonna be when we have inflation coming down.

You have disinflation, right?

Companies have been able to keep margins up, they’ve been able to keep profits high because they’ve been increasing prices as prices have been going up.

Now that narrative is starting to shift and you’re gonna have to look for other ways to protect margins, protect revenues, right?

And is that, is that layoffs that could start to have an impact on the economy?

So I look at other pockets of this market small caps.

Yeah, they look cheap.

They could be a good place to be if we have this soft landing, but that’s not in the bag, they get, they’re gonna get hit with higher rates, they’re going to get hit if we see the the economic downturn.

So I think it’s much safer to stay in those larger cap names that we’ve we’ve been seeing working so far.

I mean, we have seen some research that shows that the sort of premium that those names are getting though and that they earning also may start to shrink here.

Do you think that that is a risk?

I think it’s certainly a possibility longer term, especially when I look at a stock like NVIDIA is the assumption that they’re gonna keep a 70% margin moving forward.

That’s gonna be very tricky in a society that’s not monopolistic.

Right.

So, I do, I do think you have to broaden the horizons a little bit, but in the short term again, where you have those risks on both sides, we think you got to stick with what’s been working thus far.

And Tim I’ll get you this one theme that’s bubbling up.

You’re noting is clients maybe getting a little nervous.

Another theme I’m just interested in, we are in election year first debates coming up.

Has that been kind of bubbling up to where our clients asking more about that now?

And if so, what, what’s your advice, what’s your guidance?

We’re, we’re starting to see it pop up more and more.

Typically when you look at, you know, 2016, 2020 the volatility spikes happens a little later in the year.

So my guess is you’re gonna see that bubbling up in the next couple of months, but regardless, we still have clients asking, obviously, there’s gonna be a lot of differences in, in, in, in, in policy.

You look at uh traditional energy companies doing well under uh you know, a Trump administration, uh the, the Green Energy clean energy companies really having a little bit more of a difficult time.

What we’re encouraging clients to stay focused on right now is really the consistencies of, of what both administrations might look like.

And the one thing that is consistent, like we saw over the last two, terms of these presidents is that they like to spend money, right?

And, and, you know, in our view that is going to keep pressure up on interest rates, uh, and, and you need to be focused on that gonna be spending, it’s gonna help keep the economy going, uh in our view.

So you gotta focus what’s on what’s known right now.

And as we get closer, we start to see what the polls look like.

You’re going to see more of that uncertainty, that volatility kicking up.