The Stock Market Is Doing Something Observed Only 3 Times in 155 Years -- 1999, 2022, and 2026 -- and It Offers a Dire Warning for Wall Street

Despite the stock market's roller-coaster ride in March, 2026 is shaping up as another banner year for equities. Since early June, the time-tested Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and technology-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) have soared to all-time highs.

Investors don't have to dig too deeply to uncover the catalysts behind Wall Street's monster rally. In no particular order, the stock market's primary drivers include:

• The evolution of artificial intelligence (AI)
• Record S&P 500 share buybacks (in 2025)
• Better-than-expected corporate earnings
• Initial public offering euphoria, spurred by Space Exploration Technologies (SpaceX)

While history conclusively shows that Wall Street's major stock indexes have risen in value over multiple decades, the short-term outlook for equities isn't nearly as rosy. We're currently observing the stock market do something that's only occurred three times over the last 155 years, and this event has historically coincided with a significant sentiment shift on Wall Street.

Image source: Getty Images.

The stock market is making dubious history

To be upfront, there are always historical headwinds threatening to drag down equities. For example, outstanding margin debt has gone parabolic for the fourth time since the start of 1999. When risk-taking ramps up, it's historically spelled trouble for the Dow, S&P 500, and Nasdaq Composite.

But it's not outstanding margin debt that has a dire warning for Wall Street. Rather, it's stock valuations that should concern investors.

Value is an inherently tricky subject to tackle, given that there's no blueprint for evaluating and valuing public businesses or the broader market. What one investor finds pricey may be viewed as a bargain to another.

When valuing public companies, most investors rely on the traditional price-to-earnings (P/E) ratio. The P/E ratio is arrived at by dividing a company's share price by its trailing 12-month earnings per share (EPS). Generally, the lower the P/E ratio, the more fundamentally attractive the company in question.

However, the P/E ratio isn't without its flaws. In particular, if EPS turns negative during a recession, the P/E ratio is no longer useful. This is where the S&P 500's Shiller P/E Ratio comes in handy. You'll also see the Shiller P/E referred to as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

The Shiller P/E is based on average, inflation-adjusted EPS over the previous 10 years. Since it accounts for 10 times the earnings history of the traditional P/E ratio, it remains useful in all economic climates.

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

Even though economists only introduced the Shiller P/E in the 1980s, this tool has been used to backtest stock valuations as far back as January 1871. Over the prior 155 years, the average CAPE Ratio is roughly 17.4. On July 10, the S&P 500's CAPE Ratio topped 42!

Throughout history, there have been only three instances when the Shiller P/E Ratio surpassed 40:

• January 1999 – September 2000: During the dot-com boom, the CAPE Ratio peaked at its all-time high of 44.19 in December 1999.
• January 2022: During the first week of January 2022, the CAPE Ratio clawed its way just above the 40 mark.
• May 2026 – present day: Over the last two-plus months, the CAPE Ratio has gotten as high as 42.84, the second-priciest multiple on record during a continuous bull market.

What's concerning for Wall Street is how the stock market responded after the two previous instances above 40:

• Dot-com bubble: Just three months after the Shiller P/E Ratio peaked at its all-time high, the dot-com bubble officially burst. The S&P 500 and Nasdaq Composite shed 49% and 78% of their value, respectively.
• 2022 bear market: After a brief stint above a Shiller P/E of 40, the 2022 bear market took shape. The broad-based S&P 500 and Nasdaq Composite lost a quarter and a third of their respective value.

Historical precedent makes it clear that premium valuations, even for game-changing technological trends like the internet, aren't tolerated over an extended period. Although the CAPE Ratio can't pinpoint when a stock market correction or bear market will begin or what catalyst will cause equities to reverse course, the message to investors is unmistakable.

Image source: Getty Images.

Investors' perspective alters outcomes on Wall Street

Based solely on the Shiller P/E Ratio's track record, there's a strong possibility of a bear market decline for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite in the presumed not-too-distant future. While this isn't the rosiest of outlooks, investors' perspective can change everything.

On the one hand, no degree of fiscal or monetary policy maneuvering can ever prevent corrections or bear markets from taking place. Periods of stock market weakness are commonly driven by investors' emotions, not fiscal or monetary policy.

However, the defining characteristic of stock market downturns is that they're historically short-lived. Despite the stock market experiencing cyclical ebbs and flows, its peaks and valleys aren't mirror images of each other.

Recently, researchers at Bespoke Investment Group published a data set on social media platform X that compared the calendar-day length of every S&P 500 bull and bear market dating back to the start of the Great Depression in September 1929. Bespoke's analysis highlighted the disproportionate nature of stock market cycles.

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

At one end of the spectrum, the average S&P 500 bear market lasted 286 calendar days (approximately 9.5 months). Additionally, no bear market over the last 97 years has persisted for more than 630 calendar days.

In comparison, Bespoke found that the typical S&P 500 bull market endured for 1,023 calendar days, which is roughly 3.6 times longer than the average bear market. What's more, 14 out of 27 bull markets have lasted longer than the lengthiest bear market.

Over time, the U.S. economy expands, and Wall Street's most influential businesses increase in value, sending the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to new heights. By simply altering your perspective, the Shiller P/E Ratio's dire warning to Wall Street can shift from a worry to an opportunity.

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.