The Stock Market Is Bordering on a Dubious Record Dating Back to the Early 1870s -- and It Holds Terrifying Implications for Wall Street

Despite some wild volatility in March, it's turned out to be another phenomenal year for investors on Wall Street. Earlier this month, the time-tested Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and tech-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) all soared to fresh all-time highs.

Catalysts have been plentiful and include (but aren't limited to):

• The rise of artificial intelligence (AI)
• The advent and early stage proliferation of quantum computing
• Initial public offering (IPO)-mania
• Record S&P 500 share buybacks in 2025
• Better-than-expected corporate earnings

But even bullishness has its limits on Wall Street. The stock market is currently bordering on a dubious record dating back to the early 1870s. Should history be made, it would offer terrifying implications for Wall Street and investors.

Image source: Getty Images.

Stock market valuations are approaching uncharted territory

Several predictive indicators suggest the stock market is headed toward a sizable correction or bear market, including record margin debt, an all-time low for the Michigan Consumer Sentiment Index in May, and rapidly rising inflation. But few metrics have been more time-tested or accurate than the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

Valuing individual stocks and/or the broader market is difficult because there isn't a blueprint that works with all public companies or indexes. What's more, subjectivity and emotions often come into play, making it incredibly challenging to accurately predict short-term directional moves in individual stocks or major indexes.

What makes the Shiller P/E unique is its scope. Rather than accounting for only trailing 12-month earnings like the traditional P/E ratio, the Shiller P/E is based on average inflation-adjusted earnings from the previous decade. This time-tested valuation tool has been extensively back-tested, won't lose its usefulness during recessions, and provides the closest thing to an apples-to-apples valuation comparison of the broader market that investors will get.

While the CAPE Ratio is relatively new -- it was introduced by economists in the late 1980s -- it's been back-tested to January 1871. Spanning more than 155 years, the S&P 500's CAPE Ratio has averaged 17.39 through June 15, 2026.

Shiller PE Ratio is now just 3.5% away from passing the Dot Com Bubble as the most expensive stock market valuation in history 🚨🚨🚨 pic.twitter.com/1ceOa3yhfs

-- Barchart (@Barchart) June 1, 2026

But earlier this month, when the Dow, S&P 500, and Nasdaq Composite catapulted to new highs, the Shiller P/E Ratio hit a fresh high during the current bull market of 42.84.

To put this figure into perspective, the Shiller P/E has exceeded 40 during a continuous bull market only three times since the early 1870s, including the present. It spent just days above this mark during the first week of January 2022, which was followed by a nine-month bear market that wiped out a quarter of the S&P 500's value. The CAPE Ratio also hit its all-time high of 44.19 in December 1999, mere months before the dot-com bubble nearly cut the S&P 500 in half and slashed the Nasdaq Composite by 78%.

The evolution of AI threatens to push the Shiller P/E beyond its dubious record high set in 1999. But as history shows, premium valuations aren't well-tolerated on Wall Street. Though this time-tested valuation tool can't pinpoint the top, it's foreshadowed several significant declines in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.

Based on what this valuation indicator is telling us, it's not a matter of if but when the stock market rolls over, and the major indexes shed 20% or more of their value.

Image source: Getty Images.

Perspective is an even more powerful tool on Wall Street

While the prospect of a substantial decline in the stock market's major indexes isn't something most investors look forward to, it's not as dire as it sounds if you're a long-term investor who maintains perspective.

No amount of well-wishing or fiscal/monetary policy changes can prevent corrections, bear markets, or crashes from occurring. This is especially true, given that elevator-down moves on Wall Street are often driven by investors' emotions.

However, there's a sizable disparity between bull and bear markets that quickly becomes evident to investors who take a step back and look at the big picture.

Recently, the analysts at Bespoke Investment Group updated a data set on social media platform X that compared the length of every S&P 500 bull and bear market since the start of the Great Depression (September 1929). Bespoke found that the typical S&P 500 bear market lasted only 286 calendar days (about 9.5 months), with no bear market exceeding 630 calendar days.

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

On the other hand, the data set highlighted an average bull market length of 1,023 calendar days over more than 96 years. Furthermore, over half (14) of the 27 S&P 500 bull markets have endured longer than the lengthiest bear market.

Analysts at Crestmont Research took things a step further by calculating the rolling 20-year total returns (including dividends) of the benchmark S&P 500 since 1900. Doing so yielded 107 separate rolling 20-year periods (1900-1919, 1901-1920, and so on, to 2006-2025).

Crestmont's data set showed that all 107 rolling 20-year periods produced a positive annualized total return. In simple terms, if an investor had, hypothetically (since S&P 500 index funds didn't exist on U.S. exchanges until 1993), purchased an S&P 500-tracking index at any point between 1900 and 2006 and held it for 20 years, they would have made money every time. It didn't matter whether the stock market endured a recession, depression, wars, a pandemic, or a historically expensive valuation – it ultimately rose over every rolling 20-year period.

If dubious valuation history is made on Wall Street, patient investors who maintain perspective will be ideally positioned for success.

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.