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.
A rarely discussed market indicator is raising concerns among analysts. The S&P 500 Shiller CAPE ratio, which adjusts stock prices for long-term earnings, has reached levels seen only twice before in over a century. Both previous peaks came before major crashes—the late 1920s and the dot-com bubble of 2000.
The CAPE ratio has long been used to gauge whether stocks are overvalued. When it climbs too high, history suggests a sharp reversal often follows. This time, the warning comes as the market remains heavily driven by artificial intelligence (AI), a trend that has dominated for nearly three years.
AI stocks have continued to push the market higher into 2026, reinforcing a bullish outlook for some. Yet analysts caution that the current AI supercycle differs from the dot-com era, where valuations were untethered from fundamentals. Another key difference is timing—market corrections can stretch over months or even years before a crash materialises. Despite the risks, long-term data still favours the S&P 500. Over decades, the index has delivered average annual gains of around 7%. Experts advise that even if a downturn occurs, disciplined investors should use sell-offs to buy strong companies with steady earnings potential.
The CAPE ratio’s latest peak has put investors on alert, given its past association with severe market declines. While AI-driven growth has sustained momentum, the indicator suggests a possible correction in 2026. For now, the focus remains on whether this cycle will break from historical patterns—or repeat them.
