‘Extreme caution needed’: Why the Wall Street Boom Might End in Bust

Core Insights - The S&P 500 has achieved 25 all-time closing highs in the past three months, demonstrating resilience despite various economic headwinds [1] - Current equity valuations are at unprecedented levels, raising concerns about market fragility and potential corrections [2][3] Valuation Analysis - The Shiller CAPE ratio is currently around 38–39, more than double the long-term historical average of approximately 17, indicating potentially lower returns in the coming decades [3] - The Buffett Indicator has surpassed 200% by the end of September 2025, significantly higher than previous peaks during the dot-com boom and the 2008 financial crisis [4] Market Behavior - Historically, extreme market valuations have led to either prolonged weak returns or sharp corrections, with current rally support primarily from increased liquidity rather than fundamental factors [5] - The S&P 500 chart indicates a potential push towards the 7,000 mark, with 7,142 as a possible target, but a sharp technical pullback is anticipated thereafter [7][8] Economic Risks - Despite the calm in the U.S. stock market post-government shutdown, underlying economic risks could trigger sharp corrections in the short term [9]