The Stock Market Is Flashing 4 Warning Signs at Once. The Last Time This Happened, It Lost $7 Trillion.

U.S. consumer confidence just hit one of its lowest levels in years; it's now sitting below where it was at the start of every recession since the University of Michigan began tracking it. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) index has dropped more than 8% from its all-time high set in late January, posting its worst stretch in over a year.

But consumer confidence is just one of four warning signs flashing at the same time right now, a combination that preceded the bear market of 2023 -- when the S&P 500 lost more than $7 trillion in value. The same mix happened in 2008 as well, before one of the worst market crashes of the modern era, when stock prices fell by more than 50%.

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Sign No. 1: Stock-market valuations are near dot-com-bubble highs

Before anything else went wrong, the market was already expensive -- extremely so. The Shiller CAPE ratio -- a measure of stock-market valuations adjusted for inflation and averaged over 10 years -- hit 39.7 in January 2026.

It's the second-highest reading the index has recorded while using data going back more than 150 years. The only time it was higher was in 1999 and early 2000, when it almost reached 44.2.

Sign No. 2: Oil-price shocks often trigger recessions

Before the war in Iran began on Feb. 28th, Brent crude, an international benchmark for oil prices, was sitting just above $72 per barrel. Within weeks, it surged to $112 -- a spike of more than 50%.

The International Energy Agency has called it the largest supply disruption in the history of the global oil market, with flows through the Strait of Hormuz collapsing and producers in the region forced to curtail output.

This matters because oil shocks have a direct track record of tipping economies into recessions, and recessions are terrible for markets. While oil shocks don't always lead to one, every recession since World War II -- with the exception of the brief one in 2020 -- has been preceded by a major spike in oil prices.

Sign No. 3: The S&P 500 just broke below its 200-day moving average

While I don't put much stock in most technical indicators, there is one that does carry weight. On March 19, the S&P 500 closed below its 200-day moving average. The 200-day moving average is the index's average closing price over the past 200 trading days; it's widely watched as the dividing line between a market in an uptrend and a market in trouble.

Sign No. 4: Consumer confidence has hit historic lows

The University of Michigan Consumer Sentiment Index is an oft-cited recession indicator. It doesn't have a perfect track record, but a substantial drop has preceded or coincided with every recession since 1980.

The just-released March reading of 53.3 is now lower than the index's trough in 2008, and its more than 20-point drop from the end of 2025 is sharper than the roughly 16-point drop in the months that led up to the Great Recession.

March's reading is the third-lowest in the index's history, surpassed only in June 2022 and May 1980.

Consumer confidence is critically important because consumer spending is the most important driver of economic growth, making up about 65% of U.S. gross domestic product (GDP).

What this means for the economy and markets

Many observers hope that this is more like 2022 than 2008. But in my view, the latter may be a closer comparison.

That's because in 2022, the oil shock was relatively short-lived and the Federal Reserve had room to maneuver. Inflation was the singular force the Fed needed to respond to -- the economy was strong otherwise. Today, the U.S. is facing both inflation and a weak economy.

The option to tame inflation will come at the risk of finally tipping the economy into a recession. But unless oil stabilizes quickly -- and I don't think it will -- if the Fed chooses to sit back, it risks letting inflation get out of hand.

How long-term investors should respond

I want to be direct: I think we're in the early innings of something larger than a simple downturn.

Now, obviously, this is one opinion, and there are plenty of analysts much smarter than I who would disagree. But I would be cautious right now. I wouldn't be looking to buy AI-related stocks with stretched valuations. I would also be looking to hold more cash than I normally would.

What I am not saying, however, is to panic or to sell everything. Even if I'm right, the market will recover. But trying to time that with the bulk of your portfolio is more than likely to lose you money over time. Staying invested has always been the winning formula.

After all, the stock market has recovered from every downturn and every crash -- and then some.

Johnny Rice 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.