The Stock Market Has Done This Only 3 Times in 155 Years -- and History Couldn't Be Any Clearer About What Comes Next

When the curtain closed connected 2025, investors had each crushed to smile. The iconic Dow Jones Industrial Average (DJINDICES: ^DJI), broad-based S&P 500 (SNPINDEX: ^GSPC), and maturation stock-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 13%, 16%, and 20%, respectively. It marked the 3rd clip successful astir a period that the S&P 500 had gained astatine slightest 15% for 3 consecutive years.

This overwhelming optimism connected Wall Street has been fueled by the imaginable of aboriginal involvement complaint cuts, the emergence of artificial intelligence, the advent of quantum computing, and a resilient U.S. economy.

But erstwhile things look excessively cleanable for the banal marketplace is precisely erstwhile investors should beryllium concerned.

Although nary forecasting model, information point, oregon correlative lawsuit tin warrant short-term directional moves successful the Dow, S&P 500, and Nasdaq Composite, prime models, information points, and events person uncanny way records of foreshadowing what's to travel for stocks. One ultra-rare event, which has been observed lone 3 times successful 155 years, offers an ominous informing for Wall Street and investors successful 2026 (and beyond).

At immoderate fixed time, determination are headwinds that endanger to upend the banal market. But there's arguably nary greater hurdle for Wall Street to flooded than pricey equity valuations.

Value is, itself, a subjective word that's going to alteration from 1 capitalist to the next. With nary perfect blueprint for evaluating nationalist companies, what 1 capitalist finds to beryllium pricey mightiness beryllium viewed arsenic a screaming bargain by another. This subjectivity is 1 of the reasons wherefore short-term directional moves successful the Dow, S&P 500, and Nasdaq Composite are truthful unpredictable.

However, 1 historically close valuation tool, which has been back-tested 155 years, has done a phenomenal occupation of cutting done this subjectivity and providing investors with apples-to-apples valuation comparisons for the S&P 500. This time-tested valuation yardstick is the Shiller Price-to-Earnings (P/E) Ratio, which is besides known arsenic the cyclically adjusted P/E Ratio, oregon CAPE Ratio.