The S&P 500 (^GSPC 0.40%) has rocketed through five record highs in five days as of Friday, July 25. That strong upward momentum stands out in stark contrast to the pervasive bearish sentiment that plagued the stock market earlier this year.

Is it smart to buy stocks with the S&P 500 roaring by record highs? Historical data gives a shocking answer.

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Record highs in the stock market are relatively common

The S&P 500 is one of several major stock market indexes in the United States, but it is generally considered the best benchmark for the overall U.S. market due to its breadth. The index includes 500 large-cap companies that cover more than 80% of domestic equities by market capitalization.

The S&P 500 hits all-time highs more frequently than investors may realize. The index has historically closed at a record high on one in 15 trading days, which is approximately 7% of the time, according to JPMorgan Chase.

Moreover, the index often keeps climbing (or at least holding its level) with little to no backtracking. If we define "market floor" as incidents when the S&P 500 never declines more than 5% following a high, then nearly one in three record highs since 1988 have been market floors. In other words, about 30% of the time, the S&P 500 never fell more than 5% after hitting a high.

The stock market tends to perform better following record highs

Many investors get nervous when the stock market reaches an all-time high. The little voice in the back of your head may tell you to stop buying stocks, or even to sell existing positions. However, history says that this instinct is more likely to backfire than to prevent losses.

Goldman Sachs analysts recently explained: "Contrary to conventional wisdom, investing in the S&P 500 exclusively on days when the market hit an all-time high has historically outperformed investing on any given day, producing stronger returns over the next 1, 3, and 5 years."

The chart below expands on that information. It compares the average forward return in the S&P 500 when money is invested (1) unconditionally on any given day, and (2) exclusively on days when the index reached a record high.

Data source: JPMorgan Chase. Forward returns include dividend payments. Data collected between January 1988 and December 2024.

The data shown above comes from JPMorgan Chase. It verifies Goldman's conjecture that an S&P 500 index fund would have generated better returns had money only been invested at all-time highs, rather than on any random day.

In short, investors have no reason to fear record highs in the S&P 500. Quite the opposite, in fact. History says those days are good opportunities to add money to the stock market, no matter how counterintuitive it may seem.

However, I would be remiss not to add this disclaimer: Historical data is never a guarantee of future returns, because every situation is different. In this case, the S&P 500 currently trades at 22.2 times forward earnings, a meaningful premium to the 10-year average of 18.4 times forward earnings, according to FactSet Research.

The economy also has yet to feel the full effect of President Donald Trump's tariffs, which introduces downside risk. Indeed, the S&P 500 has a median year-end target price of 6,300 among 17 Wall Street analysts, which implies about 1% downside from its current level of 6,378. That does not mean investors should avoid the market. Rather, they should err on the side of caution by focusing solely on high-conviction ideas.