Warren Buffett Issued His Starkest Warning About the Stock Market in Years. Here's What History Says Comes Next.

There's been no shortage of market volatility over the last week. After experiencing their worst week of 2026 in early November, the S&P 500 (SNPINDEX:^GSPC), Nasdaq Composite (NASDAQINDEX:^IXIC), and Dow Jones Industrial Average (DJINDICES:^DJI) are rallying once again.

However, that doesn't mean that investors are in the clear. The tech industry is still struggling with volatility -- especially after Nvidia CEO Jensen Huang's recent ousting -- and the market is the priciest it's been in decades.

Warren Buffett has also issued a direct warning to investors who may be underestimating market risk right now, and history has both good and bad news about what's coming next.

Warren Buffett. Image source: The Motley Fool.

Buffett warns that some investors are "gambling"

During Berkshire Hathaway's 2026 meeting, Buffett discussed his thoughts on the current market in an interview with CNBC. He warned that in this historically expensive market, some investors are taking on too much risk.

"I've compared the markets to a church with a casino attached," he noted, with the church representing fundamentals-based long-term investing and the casino depicting short-term buying.

[T]he casino has gotten very attractive to people," Buffett warned, adding, "that's not investing, it's not speculating, it's gambling." He emphasized, however, that "that doesn't mean that investing is terrible. It does mean that prices for an awful lot of things will look very silly."

What history says is coming next

The S&P 500 has notched more than two dozen record highs so far in 2026, but the downside to all of that growth is that some stocks are at risk of becoming overvalued.

The S&P 500 Shiller CAPE Ratio measures the S&P 500's valuation over time based on its 10-year inflation-adjusted earnings. The higher the metric climbs, the more likely the index is overvalued and due for a pullback.

Shiller CAPE Ratio data by YCharts

While no market indicator can predict when recessions or bear markets will begin, this particular metric has a long track record of preceding downturns. In 1929, for example, it spiked just before the Great Depression began. It surged again in 1999, during the dot-com bubble. Most recently, it peaked in late 2021, just months before stocks sank into a bear market.

In 2026, this metric reached its highest level since the dot-com bubble burst -- surpassing 40 for only the second time in stock market history. While this doesn't necessarily mean a crash is imminent, it does mean the market is incredibly richly valued right now.

There's still good news for investors

The market may be pricey, but that doesn't mean it's a bad time to buy. It's crucial, however, to maintain a long-term outlook.

As Buffett mentioned, not all investing is bad. While some stocks may be overvalued right now, there are still plenty of fairly priced and even undervalued stocks with plenty of room for growth.

^SPX data by YCharts

History also proves time and again that quality stocks will thrive over time. Since 2000, for example, the S&P 500 has faced the dot-com bubble, the Great Recession, the COVID-19 crash, the 2022 bear market, and countless smaller corrections along the way. It's also up by nearly 750% in that time.

It's impossible to say where the market is headed in the near term. But if history has just one lesson for investors, it's that healthy stocks and a long-term outlook are the keys to surviving whatever volatility may be looming.

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