Since 1871, the Stock Market Has Accomplished This Feat 6 Times, Including the Present -- and the Previous 5 Occurrences All Ended in Disaster

With a little over three months left in 2026, it's shaping up as another stellar year for Wall Street and investors. Through the closing bell on Sept. 15, the time-tested Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and growth stock-dominated Nasdaq Composite (NASDAQINDEX:^IXIC) had gained 8.4%, 10.8%, and 11.8%.

Wall Street's bull market, which'll reach its fourth full year next month, has been fueled by the evolution of artificial intelligence, better-than-expected corporate earnings, and favorable tax policy that led to record S&P 500 share buybacks last year.

But as much as investors enjoy seeing green arrows in their portfolio, history shows bull markets aren't indefinite. Several headwinds are threatening to upend the stock market, including near-record-high outstanding margin debt, persistently elevated inflation, and rapidly rising U.S. debt.

Image source: Getty Images.

However, one history-backed metric with a knack for foreshadowing significant downside in the Dow, S&P 500, and Nasdaq Composite, suggests the party is about over for Wall Street.

The stock market has done this six times, spanning nearly 156 years

Although past events can't guarantee what's to come for the stock market, history has a way of rhyming more often than not. This makes historical precedent an important teacher for those willing to listen.

Arguably, no history-driven event is telling a story quite as loud as stock valuations at the moment.

Valuing stocks or the broader market is a tricky subject, given that there isn't a perfect blueprint for evaluating public companies. This allows investors' subjectivity and emotions to come into play, which is what makes accurately predicting short-term directional moves in individual stocks and the broader market so difficult.

But there's one valuation tool that, when back-tested to January 1871, has consistently and accurately foreshadowed disaster for the stock market: the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

What helps the Shiller P/E stand out is that it's based on average inflation-adjusted earnings over the last 10 years. Accounting for a decade's worth of earnings history, as opposed to just the trailing year, as the traditional P/E ratio does, ensures that the Shiller P/E always remains useful -- even during recessions.

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

Since 1871, the S&P 500's Shiller P/E Ratio has averaged 17.42. As of the closing bell on Sept. 15, it tipped the scales at almost 41.

Over nearly 156 years, the CAPE Ratio has exceeded 30 only six times, including the present. The previous five occurrences all eventually ended in disaster for Wall Street and investors:

• August to September 1929: The Shiller P/E peaked around 33 in the lead-up to the Great Depression. Once the stock market's bubble burst, the Dow Jones Industrial Average lost 89% of its value.
• June 1997 to August 2001: The CAPE Ratio's record high of 44.19 occurred in December 1999, mere months before the dot-com bubble officially burst. The S&P 500 and Nasdaq Composite plummeted 49% and 78%, respectively.
• September 2017 to November 2018: The Shiller P/E Ratio again peaked around 33 before a fourth-quarter swoon in 2018 wiped away about 20% of the S&P 500's value.
• December 2019 to February 2020: The CAPE Ratio topped out around 31, leading up to the COVID-19 crash, which sliced 34% off the benchmark S&P 500 in 33 calendar days.
• August 2020 to May 2022: For only the second time in history, the Shiller P/E (briefly) jumped above 40. The 2022 bear market resulted in peak-to-trough declines of approximately 20%, 25%, and 33% for the Dow, S&P 500, and Nasdaq, respectively.
• November 2023 to present: The S&P 500's CAPE Ratio has, thus far, peaked at 42.84 on June 1.

There's absolutely no mistaking history's message: premium valuations aren't sustainable over an extended period. Though this time-tested valuation metric can't tell investors when the music will stop or which catalyst will be responsible for pushing equities over the edge, it has a flawless track record of predicting 20% or greater declines when valuations become overextended to the upside.

Image source: Getty Images.

Stock market disasters beget opportunity for long-term investors

There's no denying that, based on historical precedent, the relatively short-term outlook for stocks is dicey, at best. A steep stock market correction or bear market would be the expectation, given what history tells us about premium stock valuations.

But history doesn't exclusively foreshadow stock market downturns. If long-term investors take a step back and examine the bigger picture, they'll discover that historical precedent can be their greatest ally.

In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that examined the length of each S&P 500 bull and bear market dating back to the start of the Great Depression in September 1929. What Bespoke's data set showed was a mile-wide disparity between bull and bear market cycles on Wall Street.

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 for 286 calendar days, or approximately 9.5 months. The data set also showed that no bear market persisted longer than 630 calendar days.

In comparison, the typical S&P 500 bull market has lasted 1,023 calendar days over the last 97 years, or roughly 3.6 times longer. Also, just over half (14 of 27) of S&P 500 bull markets have endured longer than the lengthiest bear market.

In other words, while stock market corrections, bear markets, and even a feared crash event may be inevitable, the stock market spends a disproportionate amount of time growing patient investors' wealth in bull markets.

If history rhymes, yet again, and a short-lived disaster unfolds on Wall Street, consider it your opportunity to buy into amazing businesses at attractive prices.

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.