As covered in Wednesday’s report, the Nasdaq-100 reached a fresh intraday high this week while the S&P 500 is also on the verge of hitting a new record. With stocks now trading back near all-time highs, your clients may be hesitant about putting any money into the market, but historically even less-than-ideal entry points have better than sitting on the sidelines.
As covered in Wednesday’s report, the Nasdaq-100 (NDX) reached a fresh intraday high this week just 126 days after setting its last record, pulling back more than 25% in the interim. The S&P 500 (SPX) is also on the verge of hitting a new record as it traded above 6140 on Thursday. Given the speed of the decline and the recovery, it seems likely that many people may have missed the opportunity to “buy the dip” and with stocks now trading back near all-time highs, may be hesitant about putting any money into the market.
We can certainly understand this sentiment – the market made a V-shaped recovery from a significant drawdown but there has been little progress to resolve the underlying cause of the sell-off, namely the Trump administration’s reciprocal tariffs, which are theoretically set to resume in roughly two weeks. Meanwhile, from a technical perspective, the S&P is now in heavily overbought territory with a weekly overbought/oversold (OBOS) reading north of 70%.
We’re certainly not advocating for this being an ideal entry point – from both a fundamental and technical perspective, where are reasons to be concerned about how much higher the market can go in the short-term. But, over the last 35 years, there have been few truly “bad” times to put money into the market. As we have discussed previously, over the long-term time in the market generally works in your favor which also why you’ve typically been better off to go “all-in” rather than “averaging in”.
As technicians, we don’t promote a “buy-and-hold the S&P 500” strategy. We believe there is benefit to be had by rotating between areas of relative strength and adjusting your level of exposure based on the market environment. But, if you have clients who would prefer to sit on their hands unless everything seems perfect, it can be helpful to show them that historically, even less-than-ideal entry points have better than sitting on the sidelines.
The image above shows the annualized returns for the S&P 500 Total Return Index (TR.SPXX) for every year from 1990 through 2024. So, for 1990 (12/31/1989 start date) we have 35 years of returns, while 1991 has 34 years of returns, and so on. The annualized returns for 1990 run across the top row, the returns for 1991 run across the second row, etc. As you can see, the returns for most start dates are positive within a couple of years.
There are a few periods where the returns are negative for several years – mostly for start dates around 2000 – 2002 and around 2008, showing that these outsized and multi-year drawdowns can have an impact even over a multi-year horizon. At year 25, the annualized returns for the 1998 - 2000 portfolios sit at around 7.7% lagging the 1997 portfolio by about 2%, a significant difference when you consider it amounts to more than 60% on a cumulative basis. However, while less ideal that 7.7% annualized return is significantly better than what would have been earned sitting in cash.
And as you can see, there are relatively few “bad” starting points. The 2007 portfolio, started just before the Great Financial Crisis has an annualized return of more than 10% 18 years later and the 2022 portfolio, which started just before a major drawdown, now shows an annualized return of almost 9%.
It is also worth noting that these are simple buy-and-hold returns, investors who took a tactical approach and avoided tech stocks during the dot com crash likely show significantly better long-term returns than the late 90s sample portfolios shown here.
