Is it too late to get into the market rally?

Lamont's observations suggest that there’s never a bad time to enter the market. Of the 1,176 months since January 1926, the market was at an all-time high in 354 of them, or about 30% of the time. During this time, the returns are higher if you invested when the stock market was at an all-time high than when it wasn’t.

On average, 12-month returns following an all-time high being hit have been better than at other times: 10.3% ahead of inflation compared with 8.6% when the market wasn’t at a high. Although this analysis covers a nearly 100-year time horizon, longer than most people plan for, the conclusions remain clear: investors would have missed out on a lot of potential wealth if they had taken fright whenever the market was riding high.

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Schroders' 100 years of stock market data

Wall Street is currently experiencing record-breaking highs, with the S&P 500 benchmark and other key indices hitting all-time highs. But what does this mean for someone who doesn't have much experience in trading? Well, according to Duncan Lamont, Head of Strategic Research at Schroders, when interest rates are cut, the stock market tends to perform very well. He has studied data from the last 100 years and found that after the Federal Reserve starts cutting interest rates, the average return over 12 months is 11% ahead of inflation. This is much higher than the average return on cash.

Investing while the market is at an all-time high?

Lamont also debunked a common belief that investing when the market reaches an all-time high is a bad idea. In fact, historically, investing at an all-time high has resulted in higher average returns compared to other times. This is because the market tends to go up over time and regularly reaches new all-time highs. So despite headlines suggesting that everything is expensive, Lamont believes that there are still great investment opportunities available.

Analysing mega stocks

He points out that a handful of mega stocks like Apple, Amazon, Alphabet, NVIDIA, Microsoft, Meta, and Tesla have seen a collective increase of 94% since the beginning of 2023. However, many other companies are trading at more reasonable valuations. Lamont advises investors not to feel like they've missed out on the market rally and reassures them that opportunities still exist.

Future of the market?

Looking ahead, Lamont suggests that the market could experience a smooth landing as central banks continue to cut interest rates due to lower inflation and more accommodating policies. He believes this scenario could have a positive impact on both stocks and bonds. He also predicts that equal-weighted indices, which consider a broader range of opportunities in the market, could perform better than market-cap-weighted indices in the next five years.

Although there is always risk associated with stock market investing, Lamont recommends a disciplined approach and emphasises the importance of diversification to minimise the impact of unpredictable events. He also suggests considering assets that offer inflation protection in case inflation remains high. Overall, Lamont believes that a strategic and long-term investment approach can lead to stronger performance and help navigate through uncertain times.