New all-time highs in the DJIA are a rare occurrence generally greeted with strong market emotions. The last few weeks have seen asset-gatherers clambering over each other to appear on TV proclaiming 'victory' and suggesting now is the time to buy stocks or miss out!! However, when one looks at the actual data (as opposed to anecdotes), while the returns one year out are fairly similar (6.72% after setting a new high vs. 7.07% on average over the last 113 years) Barclays finds that it is in the one-quarter time frame that the difference is most stark (-0.40% after setting a new high vs. 1.63% overall). This suggests a bias to profit-taking (and choppy trading) at all-time record highs, as opposed to a moon-shot.
Via Barclays,
We identified nine new all-time highs in the DJIA using data since 1900 (a previous high must have held for at least two years before a new all-time high is to be declared). We then computed returns on an investment made at the close of the fresh all-time high and held for one quarter (91 days), one half (182 days), and finally one year out (365 days). Additionally, to set a baseline we also looked at the average return over the defined period over the course of the entire history of the DJIA. While the returns one year out are fairly similar (6.72% after setting a new high vs. 7.07% over all) it is in the one-quarter time frame that the difference is most stark (-0.40% after setting a new high vs. 1.63% overall).
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This points to a predisposition toward modest profit taking into and after a new all-time high is made.
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The statistics support our bias for a choppy corrective tone in Q2, potentially setting up for a range bound summer.
