S&P 500 Flashes Warning Signs as Key Indicators Hit Dangerous Highs
The S&P 500 is showing signs of potential trouble ahead. Two key indicators—the Shiller Price-to-Earnings (P/E) Ratio and margin debt levels—have reached levels that historically signal market downturns. Both measures have recently climbed to heights rarely seen before major corrections.
The Shiller P/E Ratio, a long-term valuation metric, now sits at its second-highest point in history. Only the dot-com bubble of the late 1990s saw a higher reading. Over the past 155 years, this ratio has exceeded 30 on six occasions. Five of those instances were followed by sharp declines in major stock indices.
Margin debt, another closely watched indicator, has surged by 42% in just seven months. Such rapid increases have consistently appeared before stock market peaks. Historical data shows that spikes in margin debt reliably predict short-term drops in the S&P 500. Despite these warnings, no single investment firm has been identified as holding the highest margin debt on S&P 500 stocks as of December 2025. The lack of a clear outlier suggests the risk is spread across multiple market participants.
The combination of extreme Shiller P/E levels and soaring margin debt aligns with past patterns before market downturns. While no specific institution stands out for excessive leverage, the broader trend points to heightened vulnerability. Investors have previously faced steep losses under similar conditions.
