Not every all-time high leads to profit. Some are market tops, reports Landon Whaley.

Headline risks are everywhere, much like vacant storefronts in U.S. shopping malls. As an investor, you must follow the data and not be distracted by shiny objects. This week’s “Headline Risk” comes courtesy of the Old Institution and their predilection for increasing the drawdown risk embedded in investors’ portfolios regularly.

One month ago, Barron’s was telling you to “Forget Buy Low, Sell High. How to Buy High and Sell Higher.” Two weeks ago, President Trump was telling you that something is wrong if you’re only gaining 50%, and the head of wealth management for one of the largest Wall Street firms is telling you to ditch bonds because they are riskier than buying stocks at all-time highs. Now, Barron’s is calling for “Dow 30,000” and telling you “why stocks could vault past this milestone,” and Forbes is warning you “don’t be left behind [because] this stock market’s rise is going to speed up.”

There is nothing guaranteed in financial markets, but I would bet a meaningful amount of money that these tweets, interviews, covers, and articles will not age well.

From a Fundamental Gravity perspective, what’s occurring in the U.S. stock market right now is not new news. We’ve been here and done this before.

S&P 500 History Lesson

The 30-year history of S&P 500 all-time highs tells us they are a regular occurrence during growth slowing regimes, and it also tells us the most likely outcome once one of these “growth slowing” all-time highs is achieved. Here’s a brief history:

  • While U.S. growth was slowing in Q3 1990, the S&P 500 peaked at a brand new all-time high of 369.78 before dropping 20.3% over the ensuing six months.
  • The S&P 500 peaked 10 years later at an all-time high of 1552.87 during a Fall FG in Q1 2000 before crashing 50.5% over the following three years. Investors who bought that Q1 2000 all-time high waited eight years to breakeven as the S&P 500 finally broke to another all-time high during Q4 2007.
  • Speaking of that pre-crisis 2007 all-time high, it occurred amid yet another Fall Fundamental Gravity. The S&P 500 climbed to 1576.09 before getting destroyed over the next six quarters and losing 57.7% in the process.
  • During a growth slowing regime in Q2 2011, the S&P 500 peaked at a lower interim cycle high of 1370.58 and then proceeded to drop 21.6% before bottoming on Oct. 4, 2011.
  • Following a three-year rally off that October 2011 floor, everyone’s favorite benchmark hit another brand new all-time high while growth slowed during Q2 2015. The S&P 500 peaked at 2134.72 on May 20, 2015, and then corrected 15.2% before finding its footing six months later.

The pattern here is crystal clear. Over the last 30 years, new all-time highs during growth slowing regimes (specifically a Fall Fundamental Gravity) have occurred here in the United states, and those highs always proceeded crash-worthy price action in the months that followed.

The S&P 500 has continued minting brand new all-time highs throughout January. Each of these, including the one on Jan. 22 of $3,337.77, occurred during a Fall Fundamental Gravity, just like the events in our history lesson. The U.S. Fundamental Gravity, coupled with the earnings recession that no one is discussing, creates a large air pocket underneath the current price of the S&P 500.

The headline risk bottom line is that not all all-time highs are created equal, and the last thing you need to worry about right now is being “left behind” by a “stock market’s rise [that] is going to speed up.” Chasing all-time highs in the S&P 500 during Fall carries the same risk as van surfing like Teen Wolf.

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