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.
The stock market’s recent surge has been fuelled by artificial intelligence for nearly three years. Now, a rarely discussed indicator—the S&P 500 Shiller CAPE ratio—is signalling caution for only the second time in over a century. This warning comes as the ratio hits levels last seen before major crashes in the 1920s and 2000s.
The S&P 500 has long been a reliable investment, delivering average annual returns of around 7% for nearly 100 years. Yet the current CAPE ratio, sitting at 39, matches peaks from the late 1920s and the dot-com bubble. Historical patterns suggest a sharp market reversal could arrive by 2026.
This AI-driven rally differs from past booms. Unlike the dot-com era, today’s tech giants—Nvidia, Alphabet, Amazon, Microsoft, Broadcom, Meta Platforms, and Apple—are already turning generative AI into real profits. These companies have pushed the market higher in early 2024, with some investors remaining optimistic about 2026. Market corrections can stretch from months to years. While pullbacks may occur, analysts advise using dips to buy strong, earnings-driven companies. The focus remains on businesses with steady growth potential beyond the current cycle.
The CAPE ratio’s warning does not erase the S&P 500’s long-term track record. But it does highlight risks as AI stocks lead the charge. Investors now face a choice: prepare for possible volatility or hold firm in high-performing tech names.
