Should You Really Buy Stocks Right Now With the S&P 500 Near Its Record High? Warren Buffett Has Good Advice for Investors.

The S&P 500 (SNPINDEX: ^GSPC) is up 13% in 2026, putting the index on course for a fourth straight year of double-digit gains. The stock market has been supported by strong corporate earnings driven by massive investments in artificial intelligence, and Wall Street expects that strength to continue in the coming quarters.

However, the S&P 500 hit a record high of 7,758 on Aug. 7. Is it safe to buy stocks with the benchmark index near its peak? Investors should consider this advice from legendary investor Warren Buffett and also contemplate historical data on the S&P 500's performance after a record high.

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Warren Buffett's advice about picking stocks in any market environment

Warren Buffett never shied away from purchasing stocks simply because the S&P 500 was trading near its record high. Instead, he consistently put money to work for Berkshire Hathaway throughout his career using a value-oriented investment framework. He explained that framework in very simple terms in his 1996 letter to Berkshire shareholders:

Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now.

Buffett's explanation does not even mention the broader stock market. That's because it matters very little whether the S&P 500 trades near its record high.

What matters is the valuation of the stock (or stock market index) in question. Is it cheap or expensive when compared to projected earnings growth? How does the current valuation stack up against the historical average?

The S&P 500 currently trades at 28 times earnings, a material premium to the five-year average of 24 times earnings. However, S&P 500 earnings are projected to increase at 22% annually through 2027, according to FactSet Research. In that context, the S&P 500's current valuation looks quite reasonable, so long-term investors should feel comfortable buying an S&P 500 index fund today.

In the past, the S&P 500 has delivered robust returns from record highs

Conventional wisdom (and perhaps gut instinct) tends to dissuade investors from buying stocks when the S&P 500 trades near its record high. Investors often consider market peaks as a sort of ceiling, not realizing that the S&P 500 has historically hit new highs about once every 15 trading days.

Readers may be surprised to learn that, in the past, the S&P 500 has generally delivered robust returns from record highs. In fact, the index has often performed better when starting from a peak than on any random day, as shown in the table below.

Data source: J.P. Morgan. The table shows the average cumulative total return in the S&P 500 over different time periods. Data was collected from 1988 to 2024.

As shown, between 1988 and 2024, the S&P 500 achieved an average return of 13% during the year following record highs. That was slightly better than its average return of 12% over the year following an investment made on any random day, according to J.P. Morgan. Furthermore, the S&P 500 performed better during the two-, three-, and five-year periods following record highs than investments made on any random day.

In short, history says record highs are no reason to avoid the stock market. That fact, considered alongside Buffett's advice to buy stocks or index funds only when valuations are reasonable, means investors should feel comfortable investing in the stock market today if compelling opportunities present themselves.

However, past performance is not a guarantee of future results. In the months ahead, potential interest rate hikes and midterm elections pose downside risk to the stock market. Additionally, if S&P 500 companies' earnings fall short of Wall Street's lofty expectations in the coming quarters, the stock market could drop sharply as investors reset their expectations.

Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and FactSet Research Systems. The Motley Fool has a disclosure policy.