On Monday, the S&P 500 (^GSPC) notched its 30th record close of the year. For investors who want to sell, they may want to reconsider their decision. Tim Urbanowicz, head of research and investment strategy at Innovator Capital Management, says he tells his team that “the all-time high is not a catalyst for sell-offs.” opposite. It is generally a very good time to invest in the stock market.
Watch the video above to hear what Urbanowicz says the data shows about how stocks perform after hitting all-time highs and where he advises investors on where to put their money.
For more expert insights and the latest market action, click here to watch this full episode of Market Domination Overtime.
This article was written by Stéphanie Mikulich.
Video transcription
Interesting headline in the newspaper.
I want your opinion on Tim.
It says here’s the title, right?
Investors fear that a long period of calm in the markets may not last with stock indexes at record levels.
They say market volatility has been exceptionally low.
What do you think, Tim, give me all this calmness.
How nervous should I be, if at all?
Well, it’s been an incredible ride and on average right now we’re hitting a whole new record every four days on the S and P 500 this year.
Simply put, it’s important and it’s actually the number one conversation we’re having with our advisor right now.
Everyone gets a little nervous even though everything is going well.
There’s this undercurrent of nervousness.
Yeah, that’s how it is.
And what we continue to remind our advisors is that the all-time high is not a catalyst for massive sales.
It never was and never will be.
In fact, quite the opposite.
This is generally a great time to invest in the stock market.
If you look at the all-time highs, the average 12-month return that we see after this all-time high is around 12%, 77% of the time we’re positive.
ALL RIGHT.
So it’s important.
You also tend to see these all-time highs, they tend to be clustered together.
What we are currently seeing every four days is therefore not abnormal.
If you look at the period from 1989 to 2000, every nine trading days, we saw a new all-time high between 2013 and 2022 every eight trading days.
So not only is it not a catalyst for exiting the market, right?
You have to be on the market.
Now is the right time to get involved.
You must stay despite the worries.
ALL RIGHT.
So let’s take the other side of the question, so why should you be despite, just like things tend to increase, which is happening more and more.
I mean, you also look at the long term.
Stocks are going up, as we like to say here, somewhat ironically.
But what are the fundamental reasons why people should continue to invest?
Well, I think the fundamental reasons are a little different.
We’ll get to that in a second, I think now in the next 3-4 months it’s all going to be about this pristine disinflation narrative.
The break is a very profitable time to be in stocks.
It all depends on investor sentiment.
Everyone is excited.
All this time we have been looking only at inflation.
Once you start to see some relief, once it looks like the Fed is going to achieve that reduction, it tends to be very profitable.
And I will say that even when the fundamentals aren’t good, going forward, if you look at the last four hard landings, there was a point where short-term rates are peaking where it’s still profitable to start.
In fact, the S&P 500 moves at an average of 20% after short-term rates peak as high as 47% in some cases.
So whatever happens next, whatever the fundamentals, whatever the economic outcomes.
When it’s all said and done, it’s very important now because all investors are still focused on this disinflation narrative.
But the weather becomes a little cloudy after this period of 3 to 4 months.
Let me ask you, Tim, uh, if you want to see more than eight actions, that’s your advice, so stick with what’s worked.
Is that what you tell your customers?
So, it’s a big cap, it’s an A II tech, I think I have to do it, at this point in the game, for a few different reasons.
We don’t think the interest rate conversation is in the bag like the market, is it priced right now.
So you have to be careful on that front.
I think of a lot of big names in technology.
The seven Mag names are doing very well.
Despite rising interest rates, I look at this subset of stocks, you are up 75% since the rate hike cycle begins clearly, rising rates, rising rates are not a problem for these names.
So you really protect yourself from that point of view with that risk, but you also have to remember the other side.
We still don’t know what the end game will be when inflation declines.
You have disinflation, right?
Companies were able to keep their margins and profits high because they raised prices as prices rose.
Now that narrative is starting to change and you’re going to have to look at other ways to protect margins and revenue, right?
And are these layoffs that could start to have an impact on the economy?
So I’m looking at other pockets of this small cap market.
Yeah, they look cheap.
They might be a good place if we get that soft landing, but it’s not in the bag, they’ll be hit by higher rates, they’ll be hit if we see an economic slowdown.
So I think it’s much safer to stay in the larger cap stocks that we’ve seen work so far.
I mean, we’ve seen some research that shows that the kind of premium that these names are receiving and that they’re earning as well could start to decline here.
Do you think this represents a risk?
I think that’s definitely a longer-term possibility, especially when I look at a stock like NVIDIA, the assumption is that they’re going to maintain a 70% margin going forward.
This is going to be very tricky in a company that is not monopolistic.
RIGHT.
So yes, I think we need to broaden the horizons a little, but in the short term again, where there are these risks on both sides, we think we need to stick with what has worked until now. here.
And Tim, I’m going to suggest this bubbling theme to you.
You notice that customers may be getting a little nervous.
Another theme that interests me is that we are in the first debates of the election year.
Has it sort of reached a point where our customers are asking more about it now?
And if so, what, what are your tips, what are your tips?
We’re starting to see it pop up more and more.
Typically, when you look at, you know, 2016 and 2020, the spikes in volatility occur a little later in the year.
So I guess you’re going to see that bubbling up in the next few months, but regardless, we still have customers asking us, obviously, there’s going to be a lot of differences in, in, in, in, in the policy.
You look at traditional energy companies that are doing well under, you know, a Trump administration, um, Green Energy clean energy companies are really having a little tougher time.
What we’re encouraging our clients to stay focused on right now is really the consistency of what the two administrations might look like.
And the one thing that’s consistent, as we’ve seen over the last two terms of these presidents, is that they like to spend money, right?
And, and, you know, in our view, that’s going to keep pressure on interest rates, uh, and, and you have to focus on spending, that’s going to help keep the economy going, uh, to our opinion.
So you need to focus on what is known at present.
And as we get closer, we start to see what the polls look like.
You’re going to see more of this uncertainty, this volatility increase.