Look up the word “resilient” in the dictionary, and you’re liable to see a picture of the U.S. stock market.
Despite a litany of concerns, including above-average inflation, the Iran war, President Donald Trump’s tariffs, and long-duration Treasury bond yields reaching their highest level since the financial crisis, the iconic Dow Jones Industrial Average (^DJI -0.51%), broad-based S&P 500 (^GSPC -0.38%), and growth-focused Nasdaq Composite (^IXIC -0.29%) have all catapulted to several record highs this year.
While the stock market has made a habit of climbing this proverbial wall of worry and blasting to new highs over the long run, we also know that bull markets aren’t indefinite. The stock market is cyclical, with corrections, bear markets, and even pesky crashes representing the price of admission for one of the world’s greatest wealth creators.
Image source: Getty Images.
Although past events can never guarantee the future, some aspects of history have an uncanny ability to forecast what’s to come. Currently, we’re witnessing the stock market do something that’s only been observed one other time since the early 1870s. Based on what history tells us, this signal foreshadows a coming disaster for Wall Street.
The stock market is making dubious history
While several historical warnings stand out at the moment, perhaps none is more glaring than stock valuations.
Valuing individual companies or the broader market is a really tricky subject to tackle because there’s no one-size-fits-all way to evaluate every business. Invariably, emotions and/or subjectivity will play a role in the valuation process, making it incredibly difficult to forecast short-term directional moves in individual stocks or the broader market with any sustained accuracy.
But there is one valuation tool, introduced by economists in the late 1980s, that provides investors with the closest thing they’ll find to an apples-to-apples valuation comparison on Wall Street. This tool, which does a phenomenal job of moving beyond emotion and subjectivity, is the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).
What truly differentiates the Shiller P/E Ratio from the time-tested P/E ratio is the scope of earnings history examined by each valuation tool. Whereas the latter accounts for just trailing 12-month earnings, and can therefore be tripped up by recessions if earnings per share (EPS) turn negative, the Shiller P/E is based on average inflation-adjusted EPS over the trailing decade. Incorporating 10 years of EPS history provides useful valuation comparisons that recessions won’t skew.
Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt
— Barchart (@Barchart) July 11, 2026
The CAPE Ratio has been backtested to January 1871, providing nearly 156 years of historical valuation data. Over that time, it’s averaged a multiple of 17.4. But as of the close of trading on Aug. 31, the CAPE Ratio clocked in at 42.04, which is not too far below its current bull market high of 42.84, achieved on June 1, and its all-time high of 44.19 in December 1999.
Spanning nearly 156 years, the S&P 500’s Shiller P/E Ratio has topped 40 on three occasions, including the present. However, one of these instances lasted just a couple of trading sessions during the first week of January in 2022. What we’re witnessing now is just the second time in almost 156 years that the Shiller P/E Ratio has exceeded 40 for more than a month.
The last time the CAPE Ratio topped 40 for an extended period was between January 1999 and September 2000. For context, March 2000 marked the official bursting of the dot-com bubble. After this bubble-bursting event, the benchmark S&P 500 and innovation-driven Nasdaq Composite lost 49% and 78% of their values, respectively.
Even the aforementioned January 2022 incident, in which the Shiller P/E Ratio spent mere days above 40, was immediately followed by a nine-month-long bear market. During the 2022 bear market, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite shed approximately 20%, 25%, and 33% of their values.
History says that ultra-premium valuations aren’t sustainable and eventually lead to significant bear markets on Wall Street. While the S&P 500’s Shiller P/E offers no assistance in pinpointing when the stock market will top, nearly 156 years of history speak volumes.
Image source: Getty Images.
Time in the market consistently trumps trying to time short-term directional moves
While the history-based forecast for stocks is downright ugly, at least in the short run, the story changes drastically when investors take a step back and widen their lens.
As noted, stock market corrections, bear markets, and elevator-down events are akin to the price of admission on Wall Street. Investing is cyclical, and downturns are bound to happen.
But just because the stock market is cyclical and downturns are inevitable, it doesn’t mean corrections and bear markets are mirror images of bull markets on Wall Street. When investors examine the bigger picture, they’ll realize how valuable time in the market is compared to trying to time stock market downturns.
A little over three months ago, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that calculated the length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929.
The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft
— Bespoke (@bespokeinvest) May 30, 2026
Bespoke found that the average S&P 500 bear market reached its trough in 286 calendar days, or roughly 9.5 months. Meanwhile, the typical bull market has lasted 1,023 calendar days, or nearly 3.6 times as long.
A separate analysis from Crestmont Research took things a step further by examining the rolling 20-year total returns, including dividends, of the S&P 500 since the start of the 20th century. Even though the S&P wasn’t officially incepted until 1923, researchers were able to track the total returns of its components in other major indexes back to 1900.
Crestmont’s data set yielded 107 rolling 20-year periods (1900-1919, 1901-1920, and so on through 2006-2025), all of which produced a positive annualized total return. In other words, no matter how dire things appeared on Wall Street, the S&P 500 was higher after 20 years, including dividends, every time!
If history is correct in foreshadowing a significant bear market decline for equities, consider it the ideal opportunity for long-term optimists to pounce. Even the direst warnings on Wall Street offer a silver lining.