Fun With Charts!
Stock peaks
Depending on how the stock market is doing on any given day, you may occasionally hear about the Dow or the S&P 500 hitting new market highs. In turn, you may wonder whether a market high means the market is nearing its peak and headed for a downturn.
Simply put, we never know, and those who try to time the market often end up regretting it. If the market moves higher, they wish they held on to their equities for longer. (Of course, if the market does fall and they pat themselves on the back, they are likely to regret not buying stocks when the market was at its bottom.)
Dimensional1 looked at the month-end closing price for the S&P 500 index over the period 1926-2025, or 100 years of data. Their findings: 31% of monthly market closings were all-time highs. Further, “after those highs, the annualized returns ranged from almost 14% one year later to more than 10% over the next five years.” The 10% average is comparable to average market returns over the entire 100-year period.
If you’re an investor who’s concerned about markets reaching highs that will be followed by lows, take solace in knowing “Stocks are priced to deliver a positive expected return for investors, so reaching record highs regularly is the outcome one would expect.” (As an aside, don’t be concerned about your portfolio getting too ‘stock heavy,’ because that’s the purpose of rebalancing.)
Since most of us follow domestic news more than foreign news, it’s not unusual to think it’s best to focus on buying American stocks. But when it comes to the equities markets, buying American means omitting a significant number of stocks that can enhance a portfolio. In fact, it’s not that unusual for international and emerging markets to have annual returns that beat the S&P 500.
As Dimensional2 notes, “Stocks of the roughly 19,500 companies trading outside the US represent 38% of the world’s $113 trillion equity markets.” (See chart below for specific country information.) And as we all know, diversification is a big part of investing, because concentrated risk (e.g., focusing on one stock, or one sector, or one country) can have significant repercussions. Yes, you could have made a fortune by putting all your money into Berkshire Hathaway many years ago, but you would have had the exact opposite outcome if you had focused instead on Enron. knowing “Stocks are priced to deliver a positive expected return for investors, so reaching record highs regularly is the outcome one would expect.” (As an aside, don’t be concerned about your portfolio getting too ‘stock heavy,’ because that’s the purpose of rebalancing.)
1 Dimensional Quick-Takes, “Why a stock peak isn't a cliff,” 2026.
2 Dimensional Quick-Takes, “Global diversification can make a world of difference,” 2026.
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