How Likely Is It That the Stock Market Crashes in 2026? Here's What History Tells Us.

Core Insights - The S&P 500 finished 2025 with a gain of just over 16%, marking the eighth occurrence since 1926 of three consecutive years of double-digit gains [1][2] - The index's performance in 2025 follows gains of 23% in 2024 and 24% in 2023 [1] - The S&P 500 is currently the second-most expensive in history based on the Shiller P/E ratio, which is just above 40.5 [5][8] Historical Performance Analysis - Historical data shows varied performance in the fourth year following three consecutive years of double-digit gains, with outcomes ranging from negative returns to significant gains [4][6] - Notable fourth-year performances include a decline of 8% in 1929, a gain of 36% in 1945, and a decline of 18% in 2022 [4] - The S&P 500's fourth-year performance has shown no clear correlation, indicating potential volatility [6][7] Valuation Metrics - The Shiller P/E ratio, which adjusts earnings for inflation over the past decade, indicates that the S&P 500 is in rare valuation territory, only surpassed during the dot-com bubble [8] - The current Shiller P/E ratio of 40.5 suggests that the index is historically expensive, raising concerns among investors [8]