“Not long ago, society and stock markets alike were disrupted by the coronavirus pandemic. It may seem like a distant memory, but the U.S. stock market quickly entered correction territory as panicked investors fled. Fast forward to today and you’ll find headlines talking about stock markets nearing, or experiencing, all-time highs. While two very different investment climates, both scenarios tend to make investors uneasy. Instead, investors should take comfort knowing stock prices are not fighting the forces of gravity when they rise; record highs tell us the system is working as we would expect.” ~ Derek Hess, CFP®, BFA™
Financial journalists periodically stoke investors’ record-high anxiety by suggesting the laws of physics apply to financial markets—that what goes up must come down.
But shares are not heavy objects kept aloft through strenuous effort. They are perpetual claim tickets on companies’ earnings and dividends.
If stocks have a positive expected return, reaching record highs with some frequency is exactly the outcome we would expect.