Early gains turned into losses for U.S. equities, which were compounded when Senate Republicans, led by Majority Leader Mitch McConnell, blocked the House-passed plan to increase the $600 stimulus checks to $2,000. The measure soundly passed the Democrat-controlled House on Monday, but despite President Trump's urging and support from some Republicans, McConnell would not bring the proposal to a vote today.

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That let a little air out of the tires from a record-topping rally for U.S. markets, but the damage was limited. Volatility made an end-of-year appearance as the VIX popped nearly 7% on political uncertainty. Shares of Boeing (BA) got a rise as the airline manufacturer finally returned the Air Max 737 to commercial flight two years after it was grounded following two fatal crashes, and shares of Intel (INTC) jumped 5% after an activist investor recommended some "strategic alternatives" for the chipmaker. 

Global markets have been in rally mode for the past several months, and it is contagious. Even Japan has seen its equity market rise to 30-year highs as investors bet on a global recovery. But if you are looking for stocks that are "on sale," look no further than the unicorn IPOs from 2020 like DoorDash (DASH), Palantir Technologies (PLTR) and Snowflake (SNOW). After blistering debuts, several of them have fallen into a correction or worse.

Share price chart

Japan Has Risen

Japan's stock market had been the place to put money to sleep or to keep it relatively safe during periods of volatility around the world. That's not the case anymore.

The Nikkei 225 just hit highs not seen in 30 years as investors have flocked back to the island in droves. The last time the Nikkei hit an all-time high was back in Dec. 1989. This was followed by 10 years of economic stagnation that came to be known as the Lost Decade. It's been rediscovered in a big way as investors bet on its recovery and that of its major trading partners throughout Asia and the Pacific Rim.

But Japan is not out of the woods yet. Daily novel coronavirus cases hit a record 3,881 on Saturday and a new South Africa-linked variant of the virus has been detected in the country.

Japan Nikkei 225 high
Chart courtesy StockCharts.com.

Global Stock-a-Palooza

It's not just Japan's stock market that is busting out around the world. As we've been telling you, emerging markets have seen an explosion of inflows over the past several months. Emerging markets are ultra-sensitive to the global economy given their heavy reliance on exports. As the global economy shows more signs of recovery, more money flows into emerging market equity indexes like Vietnam and Taiwan.

But the enthusiasm is not limited to those markets either. Germany's DAX hit an all-time high earlier today, as did China's Shenzhen CSI 300. 

chart
Chart courtesy TradingView.

Fear of Buying at All-Time Highs

Investor psychology is peculiar. When markets get toppy or choppy, many of us are afraid to put more money to work. If I had a dollar for every person that asked me if they should invest when markets are at or near all-time highs, I'd own Investopedia by now. 

The truth is, markets hitting highs is the clearest sign of an uptrend you could possibly ask for, despite the vertigo it produces in many of us. This is how markets work. When more dollars are trying to get into an asset than are trying to get out, prices rise. If this behavior continues, prices will continue to rise. This is why all-time highs tend to follow all-time highs. Higher prices attract more buyers which attracts higher prices, and so it goes — until it stops.

But What About Performance? 

How does the S&P 500 perform following an all-time high or when it is within 5% of an all-time high. Nick Maggiulli, the outstanding blogger behind Of Dollars And Data, ran the numbers. When the S&P 500 is near an all-time high, returns over the next year are similar to those when the S&P 500 is more than 5% away from an all-time high — mostly positive. If you look at a longer time horizon — three years in this case — markets are overwhelmingly higher in the 1,000 days following those tops. 

Bull markets rarely end all of a sudden. 2020 was an exception, but it didn't take long for the bull to get back up and start running again.

Annualized Return Over Next 3 Years S&P 500
Chart courtesy Of Dollars And Data.