The Shiller P/E Ratio and Buffett indicator are considered two useful tools to understand whether the stock market is overvalued or not. These ratios predicted the dot-com bubble crash, and since then, they have often been cited inPassionate about geopolitics and macroeconomics, I express my opinion through my articles and enjoy engaging with all of you. I also write about companies that catch my attention, particularly those in my portfolio. For me, Seeking Alpha is a way to expand and share my knowledge.A ...

Though the Shiller P/E wasn't introduced until the late 1980s, it's been back-tested to January 1871. Over this 155-year period, the CAPE Ratio has averaged approximately 17.3. But for the last three months, it's vacillated between 39 and 41. The only time the Shiller P/E has been higher than it is now is in the lead-up to the bursting of the dot-com bubble.To begin with, the S&P 500's Shiller Price-to-Earnings (P/E) Ratio is nearing uncharted territory. The Shiller P/E, also referred to as the Cyclically A ...

Core Viewpoint - The article discusses the potential for a stock market correction during the second year of Donald Trump's presidency, supported by historical data and correlations, particularly focusing on the Shiller P/E Ratio and midterm election impacts. Group 1: Shiller P/E Ratio Insights - The Shiller P/E Ratio, or CAPE Ratio, has averaged 17.34 over the last 155 years but was at 40.35 as of February 11, indicating the second-highest stock market valuation in history, only behind the dot-com era [1][2] - Historical data suggests that Shiller P/E Ratios above 30 typically signal trouble for stocks, with previous instances leading to declines of 20% or more in major indices [7] Group 2: Market Performance Under Trump - Since Trump's second term began on January 20, 2025, major indices have seen significant gains: Dow up 15%, S&P 500 up 16%, and Nasdaq up 18% as of February 11 [5] - During Trump's first term, the Dow, S&P 500, and Nasdaq gained 57%, 70%, and 142% respectively, showcasing a strong market performance [6] Group 3: Historical Correlations and Market Corrections - Historically, midterm election years have led to larger stock market corrections, with an average peak-to-trough downturn of 17.5% for the S&P 500 since 1950 [13] - The S&P 500 fell nearly 20% during the midterm elections of Trump's first term, indicating a pattern that could repeat [13] Group 4: Technology and Market Bubbles - The article highlights that every major technological innovation over the past three decades has experienced a bubble-bursting event, suggesting that current investments in AI may face similar risks [8][10] - While companies are heavily investing in AI infrastructure, there are concerns about the optimization of these technologies to enhance corporate profitability [10] Group 5: Long-term Market Outlook - Despite short-term corrections, historical data shows that bear markets are typically short-lived, averaging 286 calendar days, while bull markets last significantly longer, averaging 1,011 calendar days [21] - The article emphasizes the importance of a long-term perspective for investors, as corrections and crashes tend to be temporary [18][21]

A couple of historical data points are painting a worrisome picture for Wall Street.For the better part of President Donald Trump's first term in the White House, the stock market was unstoppable. By the time he left office in January 2021, the ageless Dow Jones Industrial Average (^DJI 0.36%), benchmark S&P 500 (^GSPC 0.43%), and growth-focused Nasdaq Composite (^IXIC 0.94%) had soared by 57%, 70%, and 142%, respectively. It marked one of the highest annualized returns overseen by any president, dating bac ...

Core Viewpoint - The article highlights concerns regarding the rising margin debt in the market, suggesting it may indicate potential downturns for major stock indices like the S&P 500, Dow Jones, and Nasdaq Composite [3][7][14]. Margin Debt and Market Implications - Margin is defined as money borrowed from brokers for investment purposes, which can amplify both gains and losses [2][3]. - A significant increase in margin debt has historically preceded stock market peaks, often correlating with declines in major indices [10][11]. - There have been only six instances in the past 69 years where margin debt increased by at least 42% over seven months, with the S&P 500 declining 100% of the time one year later by an average of nearly 7% [9]. Historical Context and Forecasting Tools - The article references a flawless forecasting tool that has indicated the S&P 500's current bull market may be unsustainable due to high margin debt levels [7][12]. - Historical data shows that parabolic increases in margin debt have consistently spelled trouble for the S&P 500 since its inception in 1957 [8]. - The Shiller Price-to-Earnings (P/E) Ratio, which averages around 17.3 historically, is currently at 40.63, indicating high valuations that have preceded significant market declines [17][19]. Potential Market Outcomes - The article suggests that while the current bull market may be at risk, it also presents a potential opportunity for long-term investors if a market pullback occurs [20]. - Past occurrences of high Shiller P/E ratios have led to declines in major indices ranging from 20% to 89%, indicating a significant risk of retracement [19].

Core Insights - The Shiller P/E ratio, or CAPE Ratio, provides a more stable valuation metric by averaging inflation-adjusted EPS over the past 10 years, making it less susceptible to economic downturns [1][2] - Historical trends indicate that the S&P 500's Shiller P/E Ratio has been above its long-term average of 17.33 for nearly 30 years, suggesting a higher risk of market corrections [8][10] - The current Shiller P/E ratio is at 40.72, close to its all-time high of 44.19, with past instances of exceeding 30 leading to significant declines in major indexes [10][11] Market Performance - During President Trump's first term, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite saw substantial gains of 57%, 70%, and 142% respectively, with additional gains of 13%, 16%, and 20% in 2025 [5][7] - The stock market has historically outperformed other asset classes, with stocks providing superior long-term returns compared to bonds, commodities, and real estate [6] Historical Context - The CAPE Ratio has been back-tested to 1871, providing a long-term perspective on stock market valuations [7] - Historical data shows that every instance where the Shiller P/E exceeded 30 was followed by declines ranging from 20% to 89% in major indexes [10] Investment Strategy - While short-term market forecasts under Trump may appear pessimistic, historical patterns suggest that periods of market turbulence can lead to generational wealth creation for patient investors [15][21] - The average bear market for the S&P 500 lasts about 286 days, while bull markets typically last 1,011 days, indicating a significant disparity in market cycles [17][18] Long-term Returns - Analysis of rolling 20-year periods from 1900 to 2006 shows that every period produced positive annualized total returns for investors in the S&P 500, regardless of market conditions [20]

Core Viewpoint - The quantum computing sector, represented by companies like IonQ, Rigetti Computing, D-Wave Quantum, and Quantum Computing Inc., is facing significant challenges, including ongoing operating losses, cash burn, and unsustainable price-to-sales ratios, indicating a potential bubble in the market [1][3][20]. Quantum Computing Industry - Most analysts believe that quantum computing will take years to solve practical problems more efficiently than classical computers, and further time will be needed for businesses to optimize these technologies for sales and profit [2]. - Despite a remarkable rally of up to 3,080% for quantum computing stocks since October 2024, these companies are still in the early stages of commercializing their products and services [3]. - The arrival of quantum computing is seen as a major trend in 2025, with specialized computers capable of solving complex problems that classical computers cannot handle [4]. Stock Market Trends - The S&P 500 has shown strong performance, climbing by 16% in 2025, marking three consecutive years of gains of 15% or more, a rare occurrence in nearly a century [6][7]. - However, there are growing concerns about historical headwinds that could impact future performance, with predictions that 2026 may be viewed as the "Year of the Bubble" due to multiple potential bubbles in the market [5][20]. Artificial Intelligence Sector - In contrast to quantum computing, the AI sector, led by companies like Nvidia and Palantir Technologies, is experiencing rapid sales growth, indicating a more advanced stage of maturation [8]. - Nvidia's market cap has increased by over $4.1 trillion since early 2023, while Palantir's shares have surged approximately 2,650% [8]. - Despite robust sales of AI hardware, many businesses are still far from optimizing this technology, suggesting a pattern of overestimation in the adoption and utilization of new technologies [9]. Valuation Concerns - The overall stock market is currently considered historically expensive, with the S&P 500's Shiller Price-to-Earnings (P/E) Ratio at 40.66 as of January 8, 2026, making it the second priciest in history [17][18]. - Historical data shows that high Shiller P/E ratios have often preceded significant market declines, indicating that extended valuations may not be sustainable [19].

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]

Core Viewpoint - The article discusses the potential risks facing the U.S. stock market in 2026, primarily focusing on the Federal Reserve's divided stance and the impact of President Trump's tariffs on the economy and stock valuations [4][10][16]. Group 1: Stock Market Performance - The S&P 500's Shiller P/E Ratio, which averaged 17.3 over the last 155 years, closed out 2025 at over 40, indicating a high valuation during a prolonged bull market [2]. - The third year of the bull market saw significant gains, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite increasing by 13%, 16%, and 20% respectively [6][7]. Group 2: Economic and Policy Concerns - Headwinds for the stock market include high valuations and the potential negative effects of tariffs on the U.S. economy, particularly concerning domestic manufacturers [9][10]. - The Federal Reserve's recent history of dissenting opinions during policy meetings raises concerns about its ability to provide a cohesive monetary policy direction, which is critical given the high market valuations and tariff uncertainties [14][16]. Group 3: Federal Reserve Dynamics - The Federal Reserve has experienced unprecedented dissent in its policy decisions, with recent meetings showing conflicting opinions on interest rate adjustments [15]. - Jerome Powell's term as Fed Chair is set to end in May 2026, and the appointment of a new chair without Wall Street's support could lead to a crisis of confidence in the Federal Reserve [17][18].

Core Viewpoint - The Shiller P/E ratio indicates that the stock market is currently at a historically high valuation, suggesting a potential for significant declines in the future, particularly under President Trump's administration in 2026 [1][2][3][9]. Valuation Insights - The S&P 500's Shiller P/E ratio has averaged approximately 17.3 since 1871, but as of December 29, it reached 40.59, the second-highest valuation in history [2][3]. - Historical data shows that the Shiller P/E has exceeded 30 on six occasions, with subsequent declines in major indexes ranging from 20% to 89% [8]. Market Performance Under Trump - During Trump's first term, the Dow, S&P 500, and Nasdaq saw increases of 57%, 70%, and 142% respectively, and similar performance was observed in the early months of his second term [5][6][7]. - The current high valuation of the stock market raises concerns about potential turbulence in 2026, as historical correlations suggest increased volatility during midterm election years [10][11]. Historical Context - Historical trends indicate that stock market volatility tends to rise during midterm election years, with average corrections of 17.5% since 1950 [11][12]. - All ten Republican presidents, including Trump, have overseen recessions during their terms, establishing a historical precedent that may suggest economic challenges ahead [13]. Economic Policies Impact - Trump's tariff and trade policies have been linked to declines in employment, productivity, sales, and profits for affected companies, which could contribute to stock market weakness [15][14]. Long-term Investment Perspective - Despite potential short-term downturns, historical data shows that long-term investments in the S&P 500 have consistently yielded positive returns over 20-year periods [22][24].