For Just the Second Time in Over 150 Years, the Stock Market Is Flashing This Ominous Warning. Here's What History Says Could Be in Store for 2026.

Market Performance - The S&P 500 is projected to achieve double-digit gains for the third consecutive year, currently hovering around a near-record level of 6,839 as of December 19 [1] - The stock market has been primarily driven by the megatrend of artificial intelligence (AI) over the past three years, with AI stocks leading the market into the new year [1] Valuation Metrics - Analysts often refer to the market as expensive or frothy based on valuation multiples, particularly price-to-earnings (P/E) ratios and forward earnings estimates, which are compared to historical thresholds [4] - The S&P 500 Shiller CAPE ratio, which measures inflation-adjusted earnings over a 10-year period relative to current stock prices, is currently at a level of 39, similar to levels seen in the late 1920s and the year 2000 [5] Historical Context - Historical data indicates that when the CAPE ratio peaked, as it is now, significant market downturns followed, such as the crash during the late 1920s that led to the Great Depression [6] - The CAPE ratio previously peaked at 44 before the dot-com bubble burst in early 2000, suggesting a potential pronounced reversal in stock prices by 2026 [8]