Tuesday marked a noteworthy moment for the S&P 500 Index, as it achieved a closing high for the first time in nearly four weeks. This bullish run in the market sent a ripple of excitement through the investor community, raising a pivotal question: Is it too late to enter the market now?

Over the past two years, the S&P 500 Index has delivered exceptional gains, creating a complex dilemma for numerous investors. The age-old aphorism that “trees do not grow to the sky” resonates deeply, constantly reminding traders that relentless upward trends cannot sustain indefinitely, and a market pullback is almost inevitable at some point. The potential for a downturn makes investors extremely cautious in selecting their entry points, particularly given the current highs.

Examining this from an investment psychology angle reveals the profound impact of new market highs on investor sentiment. As indices soar and new records are established, a faction of investors finds themselves swept up in the optimism, interpreting it as a robust sign of market strength and feeling an urge to jump in. Conversely, another group becomes paralyzed by fear of an impending correction, caught in a loop of indecision between buying in and sitting on the sidelines. However, historical data shows that reaching new highs is quite a common occurrence. According to Ryan Detrick, Chief Market Strategist at Carson Group, the S&P 500 has set new highs approximately every three weeks since its modern establishment in 1957. This statistic illustrates that market peaks are not random anomalies but rather a frequent feature of long-term market performance.

Nevertheless, while it’s essential to acknowledge that hitting new highs is common, it is equally important to understand the perilous backdrop that may accompany such a trend. Although spikes in the stock market can be seen as normal, protracted periods of decline, often known as bear markets, do occur but are relatively unusual in the long scope of market development. A look back at history shows that investors remaining sidelined, endlessly awaiting market corrections, often watch substantial rallies slip through their fingers. Much like a marathon runner waiting for an elusive “perfect starting point,” they may end up missing the race entirely.

Detrick recently articulated his views on social media platform X regarding a common inquiry from investors: whether they should buy when the market is reaching new historical highs. His answer was straightforward: “Don’t fear the highs.” He elaborated that the data shows a 71% probability of the S&P 500 index continuing to rise in the twelve months following a new all-time high, with an average gain of approximately 8.3%, which aligns closely with typical market returns. Thus, from both a probability and average return standpoint, purchasing during these new highs can be a strategically sound move.

The markets, however, are not static, as can be evidenced by the S&P 500’s experience after it reached a historic high of 4,796.56 points on January 3, 2022. Following this landmark, the market entered a tumultuous downward trajectory, plummeting into bear territory by October of the same year, culminating in a staggering drop of 25%. This significant correction depleted market vitality, taking over two years before the index could eclipse that previous high once more. This instance underscores the uncertain nature of markets, as the possibility of substantial corrections persists even in the face of historic highs.

Yet, what remains crucial for investors to note is that bear markets are primarily "exceptions" rather than "norms" in the long-term progression of the market. Notably, since the recovery post the 2008 financial crisis, U.S. equities have largely demonstrated an upward trend. Throughout several years, fluctuations have occurred, but the overarching trajectory has remained upward, validating the potential and resilience of the stock market in the long run.

Even though historical data lends substantial credence to long-term holdings, investors must stay vigilant to the risks that may impact the current market landscape. In recent months, several new potential threats have surfaced, and amid U.S. large-cap stock valuations nearing historic highs, these risks have become increasingly critical. Chief among these is valuation risk. Should market sentiments shift downward—such as an investor shift towards pessimism regarding economic prospects, or unfavorable macroeconomic developments—highly valued stocks could serve as ignition points for market corrections. Fluctuations in stock prices may occur as valuations normalize, potentially leading to substantial investor losses.

For investors still pondering their entry point into the market, the answer is not straightforward; it hinges on individual investment objectives and risk tolerance. If one is looking towards the long haul, aiming to benefit from the dividends of economic growth and build an asset base over time, historical evidence suggests that waiting for market corrections may entail missing out on valuable opportunities. The onset of new historic highs does not inherently signal the end of a bullish trend; more often, it is a precursor to continued upward movement. Conversely, if an investor has lower risk tolerance or is chasing quick returns, a nuanced assessment of the current market risks and potential rewards is essential before entering. In this dynamic financial landscape filled with both opportunities and challenges, investors must align their strategies with their unique circumstances to make the most informed investment decisions.