As it stands right now, the S&P 500 is less than 2% from hitting all-time highs. The tech-heavy Nasdaq 100 is even closer, with less than 1.5% to go. This usually builds anticipation from investors and the financial media. If one were to look at the gains on the year for the S&P 500, that may build even more bullish excitement. The S&P 500 is higher by over 15% already this year and it's only the fourth month. The Nasdaq 100 broke the 20% level on Friday, which all is very impressive.
Here's the issue with the markets potentially hitting all-time highs...again. We've been there and done that. If you were to have invested in the S&P 500 last January, you would be sitting with a total gain of around 8.5%. While that is nothing to be ashamed of, what are you seeing and hearing right now about the overall markets? You keep hearing all this talk of double-digit gains and you don't have that. If you invested in early February 2018, then you have a gain of only 5%. If you happened to start investing in late December, then that would be the only group of investors that will be truly excited about maybe hitting new highs.
See, in every market move there are different emotions that come into play. In 2017 the markets seemed to hit new, all-time highs each and every day. Imagine the emotion of investors at that point. At no point was anyone scared or feeling like they were missing out. This means that there really were no sellers as everyone was winning. Now look at 2018 and you see that anyone invested early in the year saw a 10% gain on their investment (S&P 500) which was then followed by all of the 10% being erased, plus another 10%.
In December of last year everyone who invested any time in the last 23 months had a loss. Now imagine the emotion of such a large group of investors. Sure, they see that markets are calm and headed for highs now, but not everyone has the same, or even similar gains. For this reason you have different emotions. Some will be using the all-time highs to exit where they started and others are still trying to figure out why they don't have double digit gains that everyone is talking about. All this creates different emotions, which cause investors to do crazy things.
Best case scenario, this article is proven wrong and we return to 2017-type markets where we hit new highs every day this year, leading to more and more investors simply staying the course. Worst case, all those emotional investors use the all-time highs to sell and "wait for a pullback."