Indices and stocks’ record highs and lows measure the highest or lowest historical price reached during trading. Often, all-time records coincide with significant company, industry, or economic news or events. New records can tempt investors to change their strategy, potentially setting newer records as investor behavior sways the market.
Stocks and indices generally establish record lows early in their trading career as these investments continue climbing. As a result, many record lows are comparative. (For instance, if Stock A drops, you might say it’s at its lowest point in 25 years.) But it’s also possible for poorly performing stocks and indices to hit new all-time record lows.
By contrast, because the market always performs (historically) and inflation is always present, indices and stocks constantly chase new record highs. You can also measure record highs comparatively in daily, weekly, yearly, intraday, or other timeframes.
Each of the major stock indices has experienced a new record high during the Covid-19 pandemic. (In fact, the S&P 500 experienced 68 record highs in 2021 alone.)
All-time record highs often occur when significant news hits the markets, such as a positive earnings report or favorable new policies. They can also occur during bull runs when the overall market sees continual growth.
As stocks hit new record highs, they become attractive to some investors who buy in before the price rises further. But others see highs as an indicator that a stock will drop again. These investors may sell out of a “fear of heights” or take a short position.
When it comes to all-time lows, each index boasts several famous comparative lows. However, we’re only going to look at each index’s all-time record:
Company lows may occur during newsworthy events, such as new industry regulations or a recession. On the company level, poor financial performance or scandals can drive prices down. And penny stocks are renowned for repeatedly hitting record lows due to fraud or company instability.
New record lows for companies can trigger panic selling, which then drives prices even lower. When companies repeatedly reach new lows, investors may lose faith and abandon ship altogether. But if a company is generally reputable or successful, record lows present an opportunity to buy valuable securities at a discount.
When stocks hit a new record high or low, it’s tempting to secure your gains or prevent more losses. But attempting to “time the market” and catch peaks and troughs usually results in more losses than gains. While it’s easy to identify highs and lows in hindsight, it’s nearly impossible in the moment.
That’s why we often recommend a long-term buy-and-hold strategy that ignores the market’s highs and lows. If you’re investing for the future, it’s difficult to beat the long-term returns of a solid fund-based portfolio. And if you’re following such a strategy, taking the highs and lows in stride is simply par for the course.
Of course, if you’re holding individual securities that can’t seem to stop setting new record lows, it might be time to take tax-smart action and harvest your losses.
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