The S&P 500 (^GSPC), Nasdaq Composite (^IXIC), and Dow Jones Industrial Average (^DJI) have all notched new highs recently, delivering strong gains year to date.
This marks the fourth consecutive year of gains for the major indexes, with the S&P 500 posting double-digit returns for that entire stretch.
The Nasdaq’s outperformance relative to the Dow signals that the biggest gains are concentrated in the tech sector, particularly artificial intelligence stocks.
Many value stocks have also held up well, proving resilient in the face of ongoing inflationary pressures that continue to shape investor sentiment.
Rising markets have brought rising valuations, and some investors are growing nervous that a correction or crash may be on the horizon.
The CAPE ratio, which adjusts the S&P 500’s average price-to-earnings ratio for inflation, currently sits at 41.1, against a long-run historical average of just 17.8.
That reading puts the CAPE ratio at its second-highest level ever recorded, a milestone that naturally invites comparisons to past market peaks.
When the ratio peaked at 44 in 2000, the market crashed and lost value for three consecutive years, a period that scarred a generation of investors.
However, investors who stepped back from the market when valuations became highly elevated last year would have missed an 18% gain from the S&P 500 over the past twelve months.
That missed gain illustrates a core principle of long-term investing: you cannot time the market, which means you always need to be in the market.
Studies show that every rolling 20-year period since 1936 has delivered a positive return, and every 12-year period since 1972 has done the same.
Those figures hold across bull and bear markets, crashes, and corrections, reinforcing the case for patience and consistency over reactive decision-making.
The popular investing maxim captures it well: time in the market is better than timing the market, regardless of where valuations stand at any given moment.
Rather than sitting on the sidelines waiting for cheaper entry points, investors are better served by being selective about stock picks today while keeping some cash ready.
That reserved cash can be deployed strategically when a pullback does arrive, allowing investors to capture bargains without having sacrificed months of potential gains in the meantime.
