One record after another
Stock market commentators are having a field day reporting on new records. Whether it’s the CAC 40 or the S&P 500, in recent times the focus has frequently been on new highs. Yet records are not as rare as one might think on stock markets.
If we look at long daily data series, such as that for the Dow Jones starting at the beginning of the twentieth century, it’s clear that the index is at a new high around 5% of the time. What’s more, this figure applies to a data series that doesn’t reflect any reinvestment of the dividends that shareholders will have received. If we include these, the figure rises to over 7% of the time for new peaks. On the time horizon of around a century, the other flagship US share index, the S&P 500, is at a new high 6% of the time, to which we must add 2% to reflect dividends.
It’s true that 2024 gives the impression of a succession of new records. By the middle of the year, the S&P has been at a record high for 30% of the time! In France, although the CAC 40 has gained just 2% by the middle of the year, 20% of stock market days have seen a new high.
How can we explain this?
Firstly, because there are strong drivers behind share price movements – economic growth, inflation, valuation increases and earnings growth. All of these are catalysts that set this asset class on a rising trend and thus automatically able to frequently beat new records. This rising trend is well illustrated by the annual performances of the global index, the MSCI World – for close to half a century, it has risen in three out of every four years. Equities rise more often than they fall.
As we’re expecting a flood of new records at the Paris 2024 Olympic Games, whether from the mouths of sporting commentators or stock market chroniclers, we’re going to be hearing a lot of the saying “Records are there to be broken” in the days to come.
Final version of 12 July 2024 Clément Inbona, Fund Manager, La Financière de l’Echiquier (LFDE)