The stock market closed a whisker beneath it's all-time highs last Friday, but has moved higher today, pushing it above both its closing (2,130.82) and intra-day highs (2,134.72) from May 2015. If the market closes above that 2,130.82 level today, we'll "officially" have a new all-time high for the S&P 500 index.
While some have pointed out that the stock market had already eclipsed its all-time highs on a total-return basis (dividends included), and others have noted that the market has repeatedly flirted with this level (the market has crossed the 2,100 level to the upside 25 times in the past 18 months!), this is still a significant event. Many investors (including yours truly) have opined over the past year that until the market surpassed those old highs, there wasn't any real justification for getting excited about stocks. This would, at least, provide some justification for believing the longer-term bullish trend had resumed. It's no guarantee by any means, but surpassing the old highs was a prerequisite to even having that conversation. Realistically, the market probably needs to stay above those old highs for several days, and likely log a new weekly high or two, for people to really start believing a new bullish move might be underway.
Here are a couple of thoughts to consider in light of the new highs. In the first link above, Josh Brown points out that new highs of the market's total return index have recently been followed by fairly sharp corrections. So that's a strike against getting overly excited by today's new highs.
But Barron's pointed out recently that it's fairly rare for the stock market to go 300+ days between new highs, and it's been quite bullish when it has occurred in the past. They quoted Stephen Suttmeier of Bank of America Merrill Lynch as saying this has only happened 23 times since 1929, after which the S&P 500 has gained 15.6% on average over the following year, while being higher 91% of the time. Naturally that doesn't prove anything, but it does indicate that new highs generally are a very positive development, especially when investors have had to wait for them a while.
Tempering any enthusiasm is the fact that while stocks have finally taken out the old high, it's not as if they've been great performers. Another way of saying "stocks are passing the old highs today" is "stocks have effectively traded sideways (with some scary plunges and sharp rallies mixed in) for well over a year." That's not great — investors are obviously hoping for more than that when they put their capital at risk.
It's interesting that Dynamic Asset Allocation hasn't allocated money to U.S. Stocks in recent months. That's been a good move lately, as all three of DAA's recommended asset classes outperformed U.S. Stocks by a wide margin in June. Two of the three have continued to do so in July as well, with the third trailing stocks slightly through Friday's close. In short, it will take more than surpassing these highs to change DAA's posture toward U.S. Stocks — they'll have to show some follow-through and further gains to pull us back in.
All of that said, it's better for stocks to be above the old all-time high than beneath it. We're not in the prediction business, so it's not as if we're going to shift our allocations or holdings around based on something like this. But it is an interesting development and it bears watching whether stocks can hold this higher ground or whether they quickly surrender it again. Stocks have been stuck in such a narrow range for the past 12-18 months that it's natural for investors to be excited that we might finally be breaking out to the upside. Time will tell if today's move is the beginning of another leg higher for this aged bull, or just another failed attempt to push through the ceiling stocks have repeatedly bumped up against over the past year.