The Stock Market Is Doing Something Observed Only 6 Times Since 1871 -- and the Previous 5 Occurrences Ended in Disaster for Wall Street

Statistically, the stock market is the greatest wealth creator on the planet. When compared to the annualized returns of bonds, commodities, and real estate, the average annual returns of the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and technology-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) are notably higher.

Depending on your perspective, history can be a powerful teaching tool. While history can't guarantee what's to come, past events have an uncanny track record of foreshadowing the future more often than not on Wall Street.

At the moment, we're witnessing history in more ways than one. In addition to the Dow, S&P 500, and Nasdaq Composite vaulting to record highs since early June, the stock market has reached a dubious mark that's only been achieved six times since January 1871. The previous five occurrences serve as a stark warning to Wall Street and investors.

Image source: Getty Images.

We've observed the stock market do this just six times, spanning 155 years

There are always catalysts and historical precedents threatening to drag down equities. Some of the more front-and-center issues at the moment include a parabolic rise in outstanding margin debt and the prospect of higher interest rates stymying the artificial intelligence data center build-out.

But in the context of history, stock valuations take the cake.

Most investors rely on the time-tested price-to-earnings (P/E) ratio when valuing public companies or the broader market. Although the P/E ratio works great for quickly evaluating mature businesses, it's easily tripped up by recessions, which can turn earnings per share (EPS) negative.

The valuation tool that's demonstrated it can provide apples-to-apples valuation comparisons spanning more than a century, and isn't disrupted by recessions since it takes trailing 10-year EPS into account, is the S&P 500's Shiller P/E Ratio. You'll also see the Shiller P/E referred to as the Cyclically Adjusted P/E Ratio, or CAPE Ratio.

Despite being introduced by economists less than 40 years ago, the Shiller P/E Ratio has been backtested to January 1871. Over this 155-year and nearly seven-month period, it's averaged a multiple of 17.4. But as of the closing bell on July 27, the S&P 500's Shiller P/E Ratio was nearly 40.5.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

-- Barchart (@Barchart) July 11, 2026

Including the present, we've observed six instances since January 1871 in which the CAPE Ratio has exceeded 30 during a continuous bull market for at least two months. The previous five occurrences all eventually ended in disaster for the stock market:

• August to September 1929: In the two months leading up to the start of the Great Depression, the Shiller P/E surpassed 30 for the first time. From peak to trough, the Dow Jones Industrial Average lost 89% of its value.
• June 1997 to August 2001: The highest CAPE Ratio in history occurred in December 1999 (44.19), just three months before the dot-com bubble officially burst. The S&P 500 and Nasdaq Composite lost 49% and 78% of their respective values when the dot-com bubble finally bottomed.
• September 2017 to November 2018: In early 2018, the Shiller P/E peaked above 33. During the fourth quarter of 2018, Wall Street's benchmark index shed 20% of its value.
• December 2019 to February 2020: In the months leading up to the COVID-19 crash, the CAPE Ratio once again exceeded 30. While no one could have predicted a pandemic would take hold, the S&P 500 ultimately lost 34% in just 33 calendar days.
• August 2020 to May 2022: For only the second time in history, the CAPE Ratio crept above 40 for a few days during the first week of January 2022. This marked the start of the nine-month-long 2022 bear market, which slashed the Nasdaq Composite by one-third.
• November 2023 to present: The current bull market peaked at a Shiller P/E of 42.84 in early June, marking the second-priciest multiple in 155 years.

Historical precedent couldn't be any clearer that stretched valuations aren't sustainable over an extended period. Although the Shiller P/E Ratio can't specify when the stock market will top or what catalyst will push equities over the proverbial cliff, it has a flawless track record of foreshadowing eventual disaster for Wall Street.

Image source: Getty Images.

Historical precedent also foreshadows long-term success for optimists

But as stated previously, depending on your perspective, history can be a powerful teaching tool. While history has an unmistakably dire message for investors over the short term, it offers a rosy outlook for optimistic investors with a long-term mindset.

Even though most investors don't enjoy seeing red arrows in their portfolios, stock market corrections, bear markets, and short-lived crash events (such as the five-week COVID-19 crash) are inevitable. But just because stock market cycles are inevitable, it doesn't mean that bull and bear markets are anything alike.

Recently, the analysts at Bespoke Investment Group published a data set on social media platform X (formerly Twitter) that compared the length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929. The difference was night and day.

In one corner, the average S&P 500 bear market has lasted 286 calendar days, or approximately 9.5 months. Furthermore, no 20% or greater downturn in Wall Street's benchmark index has taken longer than 630 calendar days to reach its trough. Even though downturns can be violent at times, history shows that they're historically short-lived.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

-- Bespoke (@bespokeinvest) May 30, 2026

Meanwhile, the average S&P 500 bull market has lasted for 1,023 calendar days since the Great Depression, or roughly 3.6 times longer than the typical bear market. In total, just over half (14) of the 27 bull markets have exceeded the length of the longest bear market.

Statistically, it pays to be a long-term optimist on Wall Street. Even if the Shiller P/E foreshadows the future, once again, and the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite plummet, nearly a century of data shows that wagering on the long-term success of the U.S. stock market is a winning bet.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.