The Straits Times Index (SGX: ^STI) has reached a record high, crossing the 5,000-mark for the first time on 12 February 2026.
This milestone triggers both excitement and caution amongst investors, who may wonder if the market is becoming “too expensive”.
However, the index number alone tells very little about what we should do next.
Let’s break down what truly matters when the markets hit new highs, and what is just noise.
Why Record Levels Feel So Important
When news screams about market highs, it feels significant as round numbers and new highs carry a strong psychological impact.
Investors naturally use these price milestones as symbolic markers of success.
They may feel excitement and validation when markets break records.
However, they also fear buying at the “top”.
This emotional tension between excitement and caution makes new peaks feel especially dramatic.
Furthermore, media amplification intensifies this effect, creating a sense of urgency.
Yet, price milestones are analytically limited.
They don’t translate to continued gains or overvaluation, and can simply reflect steady earnings growth or long-term economic expansion.
Without examining balance sheets and economic conditions, focusing solely on headline numbers risks clouded judgment.
What the STI Number Doesn’t Tell You
The STI index is market-capitalisation weighted, which implies that stocks with higher market value will have a bigger influence on the index.
If the blue-chip heavyweights are doing well, they can easily push the entire index up even if the smaller stocks are doing badly.
The STI is heavily weighted toward the financial sector.
Together, the three local banks – DBS Group (SGX: D05), United Overseas Bank (SGX: U11) and Oversea-Chinese Banking Corporation (SGX: O39) – now account for nearly 50% of the index’s total weight.
This means the ‘record high’ is largely a reflection of banking sector health and high interest rate environments, which may mask stagnation in other sectors like REITs or technology.
STI does not provide insights into the quality of earnings growth, which may differ from one company to another.
It also does not provide information on sector divergences, where record levels of the index may hide poor performance in sectors such as property or consumer stocks if the gains are sector-specific.
The STI index value is a summary that is useful for sentiment analysis but not sufficient for investment analysis.
What Actually Matters More Than the Headline Number
Four components matter more than the headline number:
- Earnings Growth
Are the companies that make up the STI making profits in a sustainable manner?
When earnings grow as fast as the index does, a record high like 5,000 is simply the market reflecting the increased real-world value of these businesses.
This momentum suggests the price hike is backed by solid corporate performance rather than just risky guesswork.
Singapore Technologies Engineering Ltd (SGX: S63), or ST Engineering, is a prime example of sustainable growth, as its record S$32.6 billion order book provides clear evidence that the market’s rise is backed by years of guaranteed future work.
- Valuations
Compare the STI’s current price-to-earnings (P/E) and price-to-book (P/B) ratios against their long-term averages to see if the market is actually “expensive.”
Currently, the STI trades at a P/E of approximately 14.7x, which is only slightly above its 10-year average of 13.8x, and a P/B of 1.15x, which remains near historical norms.
This suggests that while the 5,000 headline is a record, stock prices are still largely supported by the actual value of company assets and profits rather than just speculative hype.
- Dividend Strength
Dividend strength matters because it provides a reliable cash cushion for your portfolio even when stock prices are volatile.
By focusing on whether these payouts are backed by actual cash flow rather than just high percentages, you can ensure your long-term returns stay on track regardless of daily market swings.
- Balance Sheet Health
A healthy balance sheet is the ultimate safety net, ensuring a company can survive unexpected market shifts.
Companies with low debt and plenty of cash can protect your portfolio from the risk of sudden downturns.
Keppel Ltd (SGX: BN4) demonstrates this strength perfectly, having transformed into a lean asset manager with a much lighter debt load and a solid cash position that protects investors from market swings.
Historical Perspective: Markets Often Make New Highs
As economic conditions improve, strong markets like the STI frequently hit multiple new highs over time.
Waiting for a “perfect entry point” is often a costly mistake, as it is nearly impossible to time the market when emotions like fear or greed take over.
In reality, long-term wealth is driven by time in the market rather than timing it, as waiting causes you to miss out on valuable dividends and the power of compounding.
What Long-Term Investors Should Do Instead
Instead of obsessing over the 5,000 milestone, check that your portfolio still fits your comfort zone and risk level.
If one stock has grown so much that it now dominates your savings, consider rebalancing to keep things steady.
Stick to a ‘slow and steady’ approach like Dollar Cost Averaging (DCA), and keep your eyes on a company’s actual health such as balance sheet strength, cash flow and profit growth instead of daily headlines.
When Record Levels Should Raise Caution
A red flag emerges when stock prices start rising much faster than the actual profits companies are making.
Another warning sign is widespread speculative behaviour.
When investors focus more on quick gains than sustainable cash flow or earnings strength, risk tends to build beneath the surface.
If people are borrowing heavily to buy stocks, this can make any market dip feel much worse.
It is important to stay objective.
Record highs are often just a sign of a growing economy, but one should always ensure your investments are backed by real value rather than just high expectations.
Get Smart: Focus On Fundamentals, Not STI Numbers
The STI hitting a record level is a psychological milestone, but it shouldn’t be your entire an investment strategy.
What matters more for your wealth is the underlying health of the businesses you own – specifically their earnings growth, reliable dividends, and strong balance sheet.
For long-term investors, staying disciplined and picking high-quality companies matters far more than whether the headline index sits at 4,000 or 5,000.
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Disclosure: Wenting A. does not own stocks mentioned.
