It’s been a stellar last 17 years for Wall Street and investors. With the exception of the five-week COVID-19 crash in February-March 2020 and the nine-month bear market in 2022, optimists have ruled the roost, and the bulls have been running wild.
The timeless Dow Jones Industrial Average (^DJI +0.28%) reached a record-closing high last week, while the benchmark S&P 500 (^GSPC +0.42%) and innovation-driven Nasdaq Composite (^IXIC +0.29%) powered to respective all-time highs in early June. Everything from artificial intelligence (AI) euphoria to record share buybacks by S&P 500 companies in 2025 has fueled this rally.
But when things seem too good to be true, they often are.
The stock market is on the verge of doing something no investor has observed in 155 years of extensive backtesting — and it has worrisome ramifications for Wall Street.
Image source: Getty Images.
The second-priciest stock market in history is bordering on becoming the most expensive
Regardless of how well or poorly stocks are performing, there are always headwinds waiting in the wings to sink equities. For instance, rapidly rising outstanding margin debt, a three-year high for inflation in May, and interest rate uncertainty are potential downside catalysts for Wall Street.
However, stock valuations are, arguably, in a category of their own.
Valuing individual stocks or the broader market is tricky since there isn’t a one-size-fits-all blueprint to do so. Evaluating public companies is a subjective process that can lead to wildly different conclusions from one investor to the next.
But there is one valuation tool that’s historically done a phenomenal job of slicing through this subjectivity and providing the closest thing to an apples-to-apples valuation comparison that investors can get on Wall Street: the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio (also known as the Cyclically Adjusted P/E Ratio, or CAPE Ratio).
Whereas the traditional P/E ratio accounts for only 12 months of trailing earnings per share (EPS), and can therefore be tripped up by recessions if EPS turns negative, the Shiller P/E is based on average inflation-adjusted EPS over the trailing 10 years. It retains its usefulness in any economic climate and can be used to compare the relative cheapness or priciness of Wall Street’s benchmark index throughout history.
Shiller PE Ratio is now just 3.5% away from passing the Dot Com Bubble as the most expensive stock market valuation in history 🚨🚨🚨 pic.twitter.com/1ceOa3yhfs
— Barchart (@Barchart) June 1, 2026
When back-tested to January 1871, the CAPE Ratio has averaged approximately 17.4. But in early June, when the S&P 500 and Nasdaq Composite were logging their respective record highs, the CAPE Ratio climbed to 42.84. Not only was this the high-water mark for the current bull market, but it came within a stone’s throw of topping the highest-ever reading of 44.19, set in December 1999 during the dot-com boom.
An ultra-high Shiller P/E Ratio has never been able to pinpoint when or why the music will stop on Wall Street. However, it accurately foreshadowed several of the stock market’s biggest downturns over the last century.
There have been six instances, including the present, during which the Shiller P/E Ratio has exceeded 30. The previous five were all followed by declines of 20% or greater in the benchmark index or its peers, the Dow and/or Nasdaq Composite:
- August to September 1929: The first time the CAPE Ratio topped 30 was in the lead-up to the Great Depression, which saw the Dow Jones Industrial Average shed 89% of its value.
- June 1997 to August 2001: The aforementioned highest-ever reading came a few months before the dot-com bubble burst in March 2000. The S&P 500 and Nasdaq lost 49% and 78% of their respective value.
- September 2017 to November 2018: After the Shiller P/E peaked at 33 in early 2018, the S&P 500 lost 20% of its value during the fourth quarter of that year.
- December 2019 to February 2020: The CAPE Ratio surpassed 30 in the months preceding the COVID-19 crash, which wiped away 34% of the S&P 500’s value in 33 calendar days.
- August 2020 to May 2022: The Shiller P/E reached a hair above 40 for a few days in January 2022 before giving way to the 2022 bear market.
- November 2023 to present: Thus far, the CAPE Ratio has peaked at 42.84.
This time-tested valuation tool leaves little room for interpretation. Premium valuations aren’t tolerated over an extended period on Wall Street, suggesting the current bull market is operating on borrowed time.
Image source: Getty Images.
Thankfully, historical precedent works in both directions
If history were to rhyme on Wall Street, significant declines should be expected for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. But if more than a century of historical precedent holds for long-term optimists, any significant dip in equities represents a buying opportunity.
Yes, stock market corrections, bear markets, and elevator-down moves can be scary at times and tug on investors’ heartstrings. It’s never fun seeing red arrows in your portfolio — but these events are normal, healthy, and inevitable. Since moves lower are commonly driven by investors’ emotions, no amount of fiscal or monetary policy maneuvering can prevent corrections, bear markets, or crashes from taking place.
But as nearly 97 years of data from the researchers at Bespoke Investment Group show, there’s a substantive difference between bull and bear markets on Wall Street.
Recently, Bespoke Investment Group published a data set to social media platform X that compared the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929. This comparison featured 27 separate bull and bear markets.
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
On the one hand, the average S&P 500 bear market over the last 97 years resolved in 286 calendar days, or the rough equivalent of 9.5 months. We’ve also never witnessed a bear market endure longer than 630 calendar days.
In comparison, the typical S&P 500 bull market has persisted for 1,023 calendar days, nearly 3.6 times longer than the average bear market. What’s more, 14 of 27 bull markets have lasted longer than the lengthiest bear market.
Just as history foreshadows short-term disaster for the stock market, based on the S&P 500’s Shiller P/E Ratio, it’s repeatedly shown that remaining optimistic and thinking long-term is a winning strategy.