Should investors worry about record market highs?

By Joe Aylott, Multi-Asset Strategist

• Global equity markets have reached multiple record highs in 2026, supported by strong corporate earnings, including seven consecutive quarters of double-digit year-over-year US earnings-per-share growth.
• An all-time market high reflects past price performance rather than a reliable signal of an imminent market downturn. All-time highs occur regularly, and many subsequently become new market floors (lower limits, below which the market rarely falls again) rather than market peaks.
• Since 1928, US equities have delivered an average 12‑month return of 8.5% following an all-time high, compared with 7.9% during other periods. Looking at more recent data since 2000, investing at an all-time high, or during other periods, has generated the same 12-month forward return of 7.8%.

Since the beginning of 2026, global equity markets are up by about 16% and have achieved 35 all-time daily closing highs (source: FTSE World index to 14 August 2026). This hasn’t been a gentle upwards slope, with markets displaying short-term turbulence amid the Middle East conflict, as well as volatility in key sectors such as energy and information technology.

Markets reaching record highs can make investors uneasy. If prices have never been higher, it is natural to wonder whether the opportunity to invest has passed, or whether a fall is imminent.

But an all-time high is a description of where the market has been, not a forecast of where it will go next. Equity markets typically rise over time as economies expand, businesses innovate and corporate earnings grow. New highs are, therefore, a regular feature of long-term investing, rather than an unusual warning sign.

Nevertheless, we know that this buoyancy, in the face of geopolitical and technological upheaval, has left some clients feeling concerned. So, are they right to be worried?

Why are equity markets at all-time highs?

Equity markets are inherently forward-looking, generally seeing beyond temporary disruption and focusing instead on future growth prospects.

They often reflect the impact of economic growth, rising corporate earnings and investor expectations of future gains. In 2026, corporate earnings have been notably strong, with the recent second quarter earnings season marking the seventh consecutive quarter of double-digit earnings per share (EPS) year-over-year growth in the US.

Clients can read more about the latest US earnings season here.

Does an equity market high today mean a downturn tomorrow?

Let’s state the obvious: investors should never rely on historical performance as an accurate guide to future financial returns. However, we’d also say that, nor should they assume that what goes up must come down again.

All-time highs occur regularly, and many subsequently become new market floors (lower limits, below which the market rarely falls again) rather than market peaks.

Since 1928, using monthly data, the US equity market has been at an all-time high 20% of the time. Since 1990, the figure rises to almost 30%.

Can investors still make gains when markets reach new highs?

Again, while the future offers no guarantees, historically, returns following an all-time stock market high have been broadly similar to those achieved at other times. In fact, equity markets have tended to deliver better-than-average returns after reaching an all-time high.

Since 1928, the average US equity return in the 12 months following an all-time high was 8.5%, compared with a return of 7.9% during other 12-month periods.

The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

However, average returns combine many individual results, which can sometimes hide how widely those results vary. To gain deeper insight, investors often seek to identify typical “bad” and “good” outcomes. A common way to do this is to arrange all results in order from highest to lowest, then identify the value below which 25% of the data falls (representing typical “bad” outcomes) and the value below which 75% falls (representing typical “good” outcomes).

Using data since 1928, we observe that when markets are at all-time highs, the typical “bad” outcome is a loss of -2.2% over the subsequent 12 months, while a typical “good” outcome is a gain of 19%. This serves as a reminder that investment returns can vary significantly even from the same starting conditions.

Interestingly, when markets are not at an all-time high, returns over the subsequent 12 months vary even more. The typical “bad” outcome is lower at -4.2%, and the typical “good” outcome is higher at 20.3%. Investors typically prefer a narrower range of outcomes.

Looking at more recent data since 2000, similar dynamics are evident. In this shorter data set, investing at an all-time high, or during other periods, has generated the same 12-month forward return of 7.8%. Again, investing at an all-time high has delivered a marginally smaller range of “good” and “bad” outcomes.

Are we confident in the outlook for equities?

We closely analyse a range of indicators as part of our Anchor & Cycle process, which guides our investment decisions. In response to signals on central bank policies, we recently adjusted the balance of our equity and bond market positions, moving to a less overweight position in our central house view on equities.

However, we’ve been overweight equities to varying degrees since October 2023, and we still prefer equities over bonds. We continue to expect spending on artificial intelligence (AI) and strong corporate earnings to support this stance. Investing in equities should always be seen as a long-term investment, but the gains that can be made have historically been superior to leaving money in cash.

As multi-asset investors, we also see value in bonds and alternative asset types, where appropriate for client portfolios. We value bonds, in particular, as a source of income and as a diversifier.

By maintaining a well-diversified portfolio through different market conditions, we aim to build resilience across a range of potential outcomes. This flexible approach helps us manage uncertainty and is intended to position portfolios to navigate both opportunities and challenges whenever they arise.

The above article has been written and published by Coutts & Co.