Is the Stock Market About to Crash? Here's What 100 Years of History Says

The S&P 500 soared over the past three years, powering through a bull market, but the momentum has shifted in recent months. Concerns about the war in Iran, the broader economy, and the pace of AI spending have weighed on investors' minds. And as a result, the major benchmark has switched directions time after time, prompting investors to wonder about its next move.

And given the recent headwinds, the big question has been the following: Is the stock market about to crash? Let's look to 100 years of history for some clues.

Image source: Getty Images.

Investors are cautious

First, as mentioned, we've witnessed a clear change in the overall investing environment in recent weeks. Investors no longer are rushing into AI stocks and other growth players, and instead, they've become more cautious -- and the market has swung from gains to losses according to the news of the day. Intensifying turmoil in Iran has sparked losses, while hope for an end to the war has spurred gains, for example.

All of this has created volatility, with many fluctuations in the index in recent weeks.

So it's not surprising that investors are wondering whether, considering the turmoil, the market may be about to crash. First, we'll look at an indicator that offers us more than 100 years of history. I'm talking about the S&P 500 Shiller CAPE index, an inflation-adjusted measure of stock prices in relation to earnings per share. That index has reached a level only reached once before, indicating that stocks are particularly expensive today.

S&P 500 Shiller CAPE Ratio data by YCharts

The S&P 500's performance

A look at the S&P 500's performance following peaks in the Shiller CAPE index shows that the benchmark generally declines after stocks reach high levels.

S&P 500 Shiller CAPE Ratio data by YCharts

Meanwhile, oil prices, which have spiked recently, have also been associated with stock market declines, as the chart below illustrates.

^SPX data by YCharts

So, the evidence suggests that the stock market may head lower, though this doesn't necessarily mean it will crash. The S&P 500 might slip in the near-term, but declines may be moderate. And even if the market does eventually crash, history shows that such difficult times are temporary and that the index has always recovered and gained in the months and years that follow.

All of this means that now, while stocks are down, is an excellent time to go bargain hunting and look for opportunities to get in on quality companies. Whether the market crashes or not, those who invest wisely today could score a win a few years down the road.

Adria Cimino 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.