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1) Don’t Be Afraid of All-Time Highs
2024 was a great year for US equity markets, with the S&P 500 hitting 57 all-time highs.
Is that something to be afraid of?
Not if someone looks at the data.
Since 1989, the S&P 500 has averaged a total return of 13.5% in the year after hitting an all-time high, which is actually above the average return from any other time period (+11.9%).
This means that new all-time highs tend to be followed by more all-time highs.
And that’s what we’ve seen in 2025, with the S&P 500 hitting 37 all-time closing highs.
2) Panic Is a Signal
There is no better signal for investors than fear and panic which tends to be followed by huge positive returns.
And in April of this year during the “Tariff Tantrum,” we saw various forms of panic including:
-The 12th largest 4-day decline in the S&P 500 since 1950 (-12.1%).
-The percentage decline in the AAII sentiment poll increased to 62%, the highest since the lowest week in March 2009 and before that the lowest in October 1990.
-The Volatility Index ($VIX) jumped 143% over 4 trading days to close above 50 for the first time since 2020.
What’s happened since then is one of the biggest short-term rallies in history, with the S&P 500 up 43% from its daily low on April 7.
3) Everyone Loves the Comeback Story
On April 8, the S&P 500 was down more than 15% on the year, its 4th worst start to a year.
But after rallying 38% on a closing basis, it is now up more than 17% on the year, hitting 37 all-time highs. This is one of the biggest market comebacks in history, just like 2020 and 2009.
While the size of the stock return in 2025 is greater than most stock markets generally, the story of the stock market is really a story of comebacks – one at a time. If we look at the S&P 500, every year it has declined, an average of -14% since 1980.
Overall, the S&P 500 has experienced a decline of 92% since 1950. But each decline in the past was eventually followed by a new all-time high. The return is the most reliable part of the story.
4) The Status Quo is Difficult to Break
At the beginning of this year, most Americans (both Republicans and Democrats) believed that the US federal government debt was unsustainable (67%) and that we should make efforts to balance the budget (83%).
But that’s not enough to change the status quo in Washington, which continues to spend far more than it receives.
As a result, the US national debt surpassed $37 trillion in August and $38 trillion in October. Over the past decade, our nation’s debt levels have more than doubled.
The interest burden on that debt has now reached a record $1.25 trillion, greater than our spending on national defense.
But the status quo is hard to break and barring a crisis, Washington is unlikely to change its wasteful ways. Because the main goal of most politicians is simply to get re-elected, and putting in maximum effort is the easiest way to achieve that.
5) Why You Diversify
“Why should I own anything but the S&P 500.”
That’s the #1 question we’re asking investors at the end of 2024.
Why do they ask?
Because we’ve just witnessed 16 years of US outperformance relative to international stocks, by far the longest stretch of outperformance in history.
But there are cycles to everything as we have seen so far this year with European Stocks (+34%) and Emerging Market Stocks (+32%) outperforming the S&P 500 (+19%).
The US stock market is in the bottom third of the country’s stock market performance so far this year.
Who could have predicted that?
No one. That’s the point. You diversify because the future is unknown.
6) Every Bear Market is Different
With a >20% decline from its high in February to its low in April, the S&P 500 has entered its 4th bear market in the last 7 years (2018, 2020, 2022, and 2025).
But that doesn’t tell you anything about what will happen next because every bear market is different.
It took less than 3 months from the bear market lows in April of this year for the S&P 500 to hit a new all-time high. It was the second-fastest recovery for US stocks in the last 75 years, trailing only the vertical rally of 1982.
During a bear market, it can be tempting to think that you can get out and get back in when “the coast is safe.” The only problem? When things are safe, many of the best days and greatest advances are behind us. We saw it again this year.
7) Time > Money
How is it December? Where did this year go?
The most important lesson for investors each year has nothing to do with investing. It all has to do with your time and how you spend it.
As Naval once said: “Money doesn’t buy happiness – it buys freedom.”
The main benefit of building wealth is that it gives you the freedom to spend your time in the most meaningful way of your life. Many people who have this freedom do not use it and only a few still use it wisely.
Why? Because they think they have time…
And that’s all for this week. Thanks for reading!
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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