The S&P 500 and Nasdaq Composite Just Made History -- the Time to Be Fearful When Others Are Greedy Has Arrived

What a difference three weeks can make on Wall Street!

When the closing bell tolled on March 27, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) had entered correction territory with a peak-to-trough decline of just over 10%. One trading day later, on March 30, the technology-packed Nasdaq Composite (NASDAQINDEX: ^IXIC) peaked at 13% below its all-time closing high. Though the benchmark S&P 500 (SNPINDEX: ^GSPC) didn't join its peers in official correction territory, it was one modest down day away from doing so.

But as of the closing bell on April 17, it's as if Wall Street's worries have all simultaneously melted away. Both the S&P 500 and Nasdaq Composite closed at record highs, with the Nasdaq logging its longest winning streak of the century: 13 consecutive trading days, as of this writing.

Image source: Getty Images.

The prospect of a swift end to the Iran war, coupled with the jaw-dropping growth prospects for artificial intelligence infrastructure and applications companies, has investors seeing green.

Yet the words of renowned billionaire investor Warren Buffett ring truer now than ever before. Buffett once opined that investors "Be fearful when others are greedy, and greedy when others are fearful." Though optimism on Wall Street has hit a crescendo, the time to be fearful when others are greedy has arrived.

Value is challenging to come by in a historically pricey stock market

Berkshire Hathaway's (NYSE: BRKA)(NYSE: BRKB) now-former CEO, Warren Buffett, lived by several unwritten investing rules. He purchased stakes in businesses for the long-term and commonly favored companies with sustained competitive advantages.

But above all else, Buffett demanded value from his prospective investments and existing holdings. If there wasn't a value proposition to be had, there was no need to invest.

For 13 consecutive quarters leading up to the Oracle of Omaha's retirement (Oct. 1, 2022 – Dec. 31, 2025), he was a net seller of equities. Collectively, Buffett sold approximately $187 billion more in stocks than were purchased during this period.

While several factors may have played a role in Wall Street's premier long-term investor persistently paring down Berkshire Hathaway's investment portfolio, such as tax-based selling, the historical priciness of the U.S. stock market sticks out like a sore thumb.

S&P 500 Shiller PE Ratio hits 2nd highest level in history 🚨 The highest was the Dot Com Bubble 🤯 pic.twitter.com/Lx634H7xKa

-- Barchart (@Barchart) December 28, 2025

According to the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), the stock market began 2026 with the second-priciest valuation since January 1871. Whereas the average Shiller P/E over the last 155 years is approximately 17.4, this time-tested indicator has oscillated between 39 and 41 for much of the last seven months.

When back-tested to 1871, the CAPE Ratio has exceeded 30 during a continuous bull market on six occasions, including the present. The previous five instances were all followed by declines of at least 20% in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite, and in some cases considerably more.

Although the Shiller P/E offers investors no assistance in pinpointing when these downturns will begin or determining how long they'll last, this time-tested valuation tool has flawlessly foreshadowed troublesome times to come for the stock market during periods of pure bliss for investors.

The time to be fearful when others are greedy has officially arrived.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.