A matter of when, not if. The new highs continued last week, and the S&P 500 index is now approaching the upper band of its rising channel. With those highs come ever loftier P/E ratios, with the trailing P/E multiple now reaching 22.4x.
As I noted last week, new all-time highs (ATHs) following a correction tend to produce strong momentum. Whereas the S&P 500 price index normally goes up 8.5% per year with a batting average of 73%, following a new high those numbers climb to +13.8% and 89%.
But just because the market has momentum doesn’t mean it’s immune to corrections. Some of history’s biggest bear markets have occurred a few months after the market presumably got the all-clear signal. The S&P 500 performance following new all time high chart shows the worst drawdowns and best “draw-ups” following a new ATH. There are a couple of doozies in there. Enjoy the ride, but don’t get complacent.