In May, stocks rallied significantly. US large and small caps led, while international stocks also continued to go up. Bonds declined. So far for the year, international stocks are the clear leader, followed by bonds. US large cap stocks have also increased, while small-cap stocks have gone down.
Is Now A Great Time To Buy?
Throughout market history, volatility is a common feature of investing. This year has been no exception. On April 7th, the S&P 500 was down over 20% in less than two months from its high point in February. Volatility exploded higher, coinciding with President Trump’s initial tariff announcements. When markets are falling quickly, investing is a challenge, and it’s a scary time to buy more.
Since April, the market has rallied back to within a few percentage points of its high point. The initial tariff proclamations have been delayed, softened, and challenged in court. Ironically, investing is still a challenge after a strong rally. Who wants to buy more after prices have risen and risks still remain? Have investors missed an opportunity?
The following charts from JPMorgan communicate a counterintuitive point – that all time high market values are not necessarily a bad time to invest new money:
The left chart shows some interesting data points — The S&P 500 has made 60 new all-time highs since 2024. Also, around 29% of the time, the market never fell more than 5% from a high point. Sometimes, markets continue to make many new highs before correcting. When this happens, investors waiting for the market to fall will never get the chance to buy at much lower values.
The chart on the right compares returns from two sets of data. The green bars show the average forward returns from a high point, while the gray bars show the average returns from the entire time period since 1988. Over longer time frames, buying at a high point actually provides higher average returns than buying on a random day.
While this data can’t tell us whether or not markets will revisit their recent low point from April 7th, it can show us that buying while markets are down, and when they are up, can both be a winning strategy for investors over time.
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