Last week, the U.S. stock market hit a new all-time high. With several months remaining in the year, the S&P 500’s total return is already hovering around the long-term yearly average. After a run like this, some investors may be hearing alarm bells. Are all-time highs a signal to sell?

That is a rational question, as we are all taught to buy low and sell high. New highs actually occur more frequently than most people realize. Case in point, last week’s milestone marked the 18th new high of 2025. In fact, the S&P 500 recorded at least one new high in 12 of the last 13 years, and averaged around 32 new highs per year over that time.  

So new highs are a common occurrence, but what do they say about what kind of return we can expect? We can answer this question with a look back at history. The chart below shows average annualized returns for the S&P 500 in one-, three-, and five-year periods following months with a record high, and compares them with all other months.

Stock Returns After All-Time Highs

Source: Dimensional Fund Advisors. Past performance is no guarantee of future results. New market highs are defined as months ending with the market above all previous levels for the sample period. Annualized compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market highs observations. There were 1,163 observation months in the sample. January 1926 -December 1989: S&P 500 Index; Stocks, Bonds, Bills and Inflation Yearbook®, Ibbotson Associates, Chicago. January 1990 -Present: S&P 500 TR Index.

The chart suggests a modest momentum pattern. One year after a month with a new high, average returns were 13.7% compared with 12.4% after other months. Over three and five years, the averages are essentially the same: 10.6% vs 10.7% and 10.2% vs 10.3%, which indicates little relationship between new highs and longer-term performance.

The above data gives us a clear answer to the question posed earlier. Market highs should not be taken as a signal to sell out of stocks.  

It is important for investors to understand that while market prices rise over time, the businesses being purchased tend to grow as well. Paying an all-time high price can still be a bargain if it comes with the ability to participate in record sales and profits. This relationship explains why investors focus on valuation ratios. Price in a vacuum is not very informative. The focus must include both the price paid and the benefit received. 

There are two caveats that are worth mentioning. First, while an all-time high has not been a sell signal historically, that doesn’t mean we won’t see any volatility ahead. There is plenty of uncertainty that could lead to a rocky period. This includes:

• Elevated valuations for large-cap U.S. stocks
• The risk of ‘tighter for longer’ monetary policy
• Geopolitical shocks and trade policy uncertainty
• The fiscal backdrop of higher debt and deficits

Ultimately, a new market high is not, by itself, a sell signal. Still, for investors who were already considering a risk reduction for personal planning reasons, this may be a sensible moment to make that change.