Market Update – August 22nd, 2025

Investing Near ATHs

The S&P 500 has captured a series of new all-time highs in 2025, closing at record levels on 18 trading days so far this year, including a flurry of highs this month.¹  Yet despite the positive headlines, investor reactions tend to be more cautious than celebratory.  It’s a common psychological trap for investors: when markets are strong, a pullback seems inevitable and ironically, it’s often in periods of positive market momentum that investors become the most risk averse.

Historical context is a helpful start to push through this instinctual hesitation.  To start, all-time highs are by no means rare: since 1950, the S&P 500 has closed at an all-time high on 7% of trading days and almost 1/3^rd of the time, these levels became new market “floors” where the market never returns to give investors the chance to invest at or below.  Observe in the chart on the left below that new highs often occur in clusters, not as isolated peaks.² 

In fact, as counterintuitive as it sounds, investing new capital at a new high has resulted in higher long-term returns vs. the average for all days since 1988.  Note that short-term returns are the inverse but with a suitably long-term horizon for investing in stocks, it doesn’t payoff to avoid all-time highs.³

At this point, the S&P 500 is roughly 35 months into a bull market that began off the depths of the 2022 bear market. On average, bull markets last 70 months and some much, much longer.  The most recent bull market was a short-one beginning in March 2020 and lasting less than 2 years.⁴

The next question should be if that the market is at a higher price today, am I getting more or less earnings for that higher price, in other words the valuation of the market comes into consideration.  The forward Price-to-Earnings ratio for the market is essentially unchanged for the year, because earnings expectations have risen along with the market.  Corporate earnings revisions have sharply recovered from the tariff-induced deterioration and expectations for earnings growth have risen for 2026 and beyond⁵:

Rising earnings should further comfort investors at all-time highs as opposed to a rising market without strong fundamental underpinnings and persistent multiple expansion. 

Thus far, we’ve only addressed the S&P 500; which we know is heavily influenced by the extreme concentration in the largest companies.  At all-time highs on the headline index, several portfolio initiatives can work to manage the risks:

Reaffirm Diversification Within Equities

• Even in a strong overall market, leadership rotates. A diversified portfolio reduces concentration risk and improves risk-adjusted outcomes over time.  The overall market has reached a peak but sectors of the market have not participated as much as others.
• Outside of the S&P 500, valuations are more attractive:  the Top 10 largest stocks in the S&P 500 trade at 29.8x today while the other 490 remaining stocks trade at 20.6x.  This is an argument for incorporating some active management in the equity portfolio.⁶
• Small and Mid-cap stocks in the US trade at 23x and 18x respectively.  The Russell 2000 Index hasn’t closed at it’s all-time high since November 2021.^7,8 
• International markets have outpaced US markets during 2025, providing a boost to global investors but international stocks still maintain a steep discount in valuation and are benefiting from currency tailwinds, resurgences in their economies and earnings as well as generally accommodative monetary policy.

Market Timing Isn’t Risk Management

• Risk management is realigning asset allocation to the strategic weightings between broad asset classes which is best undertaken during good times as opposed to bad.
• We emphasize the management of short-term needs with cash and fixed income so that long-term funds can be deployed with the expectation that volatility is a feature of long-term investing. 
• Rebalancing by trimming oversized positions that have performed well and embracing contrarian and less-loved areas of the market is disciplined portfolio management. 

Along with these strong returns, we aim to be proactive in portfolio management and stay aware of the risks to the outlook.  While it’s natural to feel uneasy about investing when markets are at all-time highs, history has shown that disciplined, long-term investors are often rewarded for staying the course. Rather than trying to time the next pullback, we continue to emphasize diversification, prudent risk management, and a focus on fundamentals. The path forward may not be linear and the strategy should remain flexible to weather volatility that will present for one reason or another. 

We will stay in close touch as we enter the final phase of 2025.  Please reach out to our team with any questions or concerns as always.

Footnotes:

1. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
2. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
3. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
4. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
5. Bloomberg data
6. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
7. JPMorgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
8. Morningstar Direct data

The views expressed herein are those of John Nagle on August 22nd, 2025 and are subject to change at any time based on market or other conditions, as are statements of financial market trends, which are based on current market conditions. This market commentary is a publication of Kavar Capital Partners (KCP) and is provided as a service to clients and friends of KCP solely for their own use and information. The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s investment portfolio. All investment strategies have the potential for profit or loss and past performance does not ensure future results. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The charts and graphs presented do not represent the performance of KCP or any of its advisory clients. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results.  There can be no assurances that a client’s portfolio will match or outperform any particular benchmark. KCP makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based on information that KCP considers reliable, it is not guaranteed as to accuracy or completeness. This information may become outdated and KCP is not obligated to update any information or opinions contained herein. Articles herein may not necessarily reflect the investment position or the strategies of KCP. KCP is registered as an investment adviser and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.