Why you should stay invested

On Monday, the S&P 500 (^GSPC) hit its 30th record close of the year. For investors who may want to sell, they may want to reconsider. Tim Urbanovich, head of research and investment strategy at Innovator Capital Management, says he tells his team that “an all-time high is not a catalyst for selling. It never was, and it never will be.” Therefore, this is the right time to invest in the stock market.”

Watch the video above to hear what Urbanovich says the data shows about how stocks are performing after hitting all-time highs, and where he advises investors on where to invest money.

For more expert insights and the latest market action, click here to watch this full episode of Overtime for Market Domination.

This post was written by Stephanie Mikulic.

Video version

Interesting title in the magazine.

I want your opinion on Tim.

He says that’s the headline, right?

Investors fear that the long period of calm in the markets will not continue with stock indices rising to record levels.

They say market volatility has been exceptionally low.

What do you think about it, Tim? Give me all the peace.

How nervous should I be if this is the case?

Well, it’s been an amazing run, and on average now, we’re hitting a brand new all-time high every four days in the S and P 500 this year.

This is important and this is actually the first conversation we’re having with our advisor now.

Everyone feels a little nervous even though everything is fine.

There’s this undercurrent of uh some tension.

Yes, it seems so.

What we keep reminding our advisors is that an all-time high is not a trigger for selling.

It never was, and it never will be.

In fact, quite the opposite.

It tends to be a very good time to invest in the stock market.

If you look at historical all-time highs, the average return over 12 months that we then see the all-time high is about 12% and 77% of the time we are positive.

Yes.

So this is important.

You also tend to see all-time highs, they tend to cluster together.

So what we are seeing now every four days is not abnormal.

Look at the period from 1989 to 2000, every nine trading days, we saw a new all-time high from 2013 to 2022 every eight trading days.

So, not only is this not an incentive to exit the market, right?

You have to be in the market.

It is the right time to invest.

You must survive despite the fears.

Yes.

So let’s take the other side of that, why should it be though, like things tend to go up and they do over and over again.

The story continues

I mean you’re looking at the long term as well.

Stocks are going up, as we like to say here, which is kind of ironic.

But what are the fundamental reasons why people keep investing?

Well, I think the underlying reasons are a bit different.

We’ll get to that in a second, I think now, over the next three to four months, it’s going to be all about this clean narrative of getting inflation down.

A pause is a very profitable time to trade stocks.

It’s all about investor sentiment.

Everyone is excited.

It’s been all about inflation all this time.

Once you start to see some relief, and once it looks like the Fed is going to hit that cut, it tends to be very profitable.

I will say that even when the fundamentals are not good, if you look at the last four hard landings, there was a time when short-term interest rates peaked where they always start out profitable.

In fact, the S and P 500 average 20% after short-term rates reach 47% in some cases.

So no matter what’s next, no matter what the fundamentals may look like, no matter the economic outcome.

When all is said and done now, this is very important because all investors are always focused on the narrative of lower inflation.

But then it becomes a little cloudy for 3 to 4 months.

Let me ask you, Tim, if you want to see more than eight stocks, here’s my advice, then stick with what’s worked.

Is this what you tell clients?

So, it’s a high ceiling, and I think it’s an A II technique, at this point in the game, for a few different reasons.

One we don’t think the interest rate uh conversation is in the bag like the market, is it priced now.

So you have to be careful on that front.

I think a lot of the big tech names.

The Mag Seven names have been doing very well.

Even though interest rates are rising, I look at that subset of securities, they’re up 75% since the interest rate hike cycle started obviously, rising interest rates, rising interest rates is not an issue for these names.

So, you’re really protecting yourself from that perspective with that risk, but you also have to remember the other side.

We still don’t know what the endgame will be when inflation falls.

You have a contraction, right?

Companies were able to keep profit margins high, and they were able to maintain high profits because they were increasing prices as prices rose.

Now that narrative is starting to shift and you’re going to have to look for other ways to protect margins and protect revenue, right?

Does this mean that layoffs may start to affect the economy?

So I look at other pockets of this market that are small cap.

Yes, it looks cheap.

They could be a good place to be if we get that soft landing, but that’s not in the bag, they’re going to get hit at higher rates, and they’re going to take a hit if we see an economic downturn.

So I think it’s safer to stick with those big names that we’ve seen work so far.

I mean, we’ve seen some research that shows that the kind of premium that those names are getting and that they’re also earning may start to diminish here.

Do you think this is dangerous?

I think it’s definitely a long-term possibility, especially when I look at a stock like NVIDIA, the assumption is that they’re going to maintain 70% margin going forward.

This would be very difficult in a society that is not a monopoly.

right.

So, I think you have to broaden your horizons a little bit, but in the short term again, where there are those risks on both sides, we think you have to stick with what has worked so far.

And Tim, I’ll bring you this topic that’s been escalating.

You notice that customers may be feeling a little nervous.

There is another topic that interests me, as we are in the first debates coming into an election year.

Has this kind of bubbled up to where our customers are asking more about that now?

If so, what is your advice, what is your guidance?

We’re starting to see it appear more and more.

Typically, when you look at 2016 and 2020, the volatility spike happens a little later in the year.

So I think you’ll see that ramp up in the next couple of months, but regardless, we still have customers asking, obviously there’s going to be a lot of policy differences.

You look at the traditional energy companies that are doing well under the Trump administration, uh, green energy clean energy companies are having a really tough time.

What we encourage clients to continue to focus on now is actually the consistency of what the two administrations might look like.

And the one thing that’s consistent, as we’ve seen over the last two terms of these presidents, is that they like to spend money, right?

And, you know, in our view, this will continue to put pressure on interest rates, and you’ll have to focus on spending, and it will help keep the economy going, in our view.

So you have to focus on what is known now.

As we get closer, we begin to see what the polls look like.

You will see more uncertainty, and that volatility is rising.