Stocks Hit Record Highs Every Three Days on Average in Q3

We all know markets have been on a run, but just how fast they’re moving might shock you. 

US equity markets have hit all-time highs one out of every three days on average in the third quarter, according to a Vanguard analysis. In fact, Q3 accounted for the majority of record high days so far this year. Those stats can make it easier for advisors to navigate the markets, without having to chase returns, while keeping clients diversified.

 “In other large bull markets, we saw investors piling into equities, and that creates asset allocations above their tolerance,” said Fran Kinniry, head of Vanguard’s investment advisory research center. “Over the past decade, there’s been record flows into bonds and money markets, while equities are almost flat.”

Timing Ain’t Anything

If you just read the headlines on the economy or looked at the political environment over the past nine months, without context, you probably would’ve thought the markets were set up for a terrible year and quarter, but it’s quite the opposite, Kinniry told Advisor Upside. “A lot of people try to make the market into simple patterns, like, ‘If this happens, then that happens,’” he said. “The key is to set asset allocations based on goals, objectives, time horizons, and really try to tune out all the noise.”

The Vanguard analysis found:

• Equities reached record highs on 28 days this year through Q3 — or 15% of trading days — far exceeding the long-term average of about 15 days, or 8%.
• A balanced investor with a 60/40 split would be up 5% for the quarter and 13% year-to-date.

Can You Take Me Higher? Many economists say markets are overvalued. The Buffett Indicator, which compares the total value of the stock market to US GDP, is currently at a record high of nearly 220%. That kind of level is often an indicator that the economy is in a bubble. Some strategists believe high valuations may persist, and Kinniry agrees there’s some truth to that.

“The companies that make up the US economy today look totally different than 50 years ago,” he said, noting that today’s leading stocks are asset-light, cash-generating businesses with high P/E multiples, unlike the industrial-heavy market leaders of the past. However, he cautioned against calling high valuations the new norm. “The market is always different all the time,” he said. “Comparing today’s P/E to one from 50 years ago doesn’t make much sense.”