The 100-year-old Dow Jones stock index hit a record high for eight consecutive days, ending Friday.
It was a remarkable streak. After such a run, you’re probably wondering: "Is it all over? Shouldn’t stocks be near a peak now? Should I sell?"
My answer to all those questions, as I’ll explain, is a resounding "no."
Stocks are not near a peak now — far from it. Based on 100 years of history, instead of selling, you actually want to buy stocks now.
That’s because, after stocks have a good quarter, they normally have a fantastic next 12 months.
The first quarter of this year has been fantastic. Stocks are up by double digits, percentage-wise: up 11 percent year to date. It is the best first quarter since the 11 percent gain in the first quarter of 1998 and the 11 percent gain in the first quarter of 1991.
Based on history, the next 12 months should be pretty darn good for stocks.
I used our True Wealth Systems database to look back at 100 years of data. Here’s what I found:
If you bought the stock market (the Dow) any time the index rose 10 percent or more in any quarter, your stocks rose 9.4 percent over the next 12 months. That crushes a buy-and-hold strategy, which returned only 5.5 percent. (These numbers don’t include dividends.)
And if you bought the Dow after a bad quarter, you would underperform over the next 12 months.
You can see the exact numbers right here:
|Status||Index return after
|When the Dow rose by 10% or more in a quarter||+9.4%|
|When the Dow fell by 7.5% or more in a quarter||+3.1%|
|Gain in all periods||+5.5%|
So the short answer is you want to own stocks after the Dow has a really strong quarter, like it just did. It means outsized gains are more than likely over the next 12 months.
You might think it’s scary to buy stocks after such a great run recently and such a strong first quarter of this year.
Of course, in the short term, a pullback is possible. But you shouldn’t be concerned with the short term. You should be looking a year ahead.
A hundred years of history tell us that a strong quarter for stocks is a good sign — not a bad one — for the next 12 months.
In short, there’s no need to sell because stocks are up.
— Steve Sjuggerud
This article originally appeared on March 18, 2013, at DailyWealth.com.