The S&P 500, Dow Jones Industry Average and Nasdaq Composite all pushed to a record closure of highs in 2025.
Inventory securities are in the area collected when viewed back into 154 years – and there is a limit to how much these contributions can be stretched.
The historic precedent offers much more promises than the risk of investors.
10 shares we like more than Dow Jones Industry Average ›
This year was a good reminder of the superior property creator can be for patient investors. Despite the end of March and early April with tariffs-related shares, Wall Street Health Barometer- S&P 500(Snigex: ^GSPC)along with age Dow Jones Industry Average(Djindices: ^dji) and innovation is encouraged Nasdaq Composite(Nasdaqindex: ^IIKSION)Everyone pushed into many record heights.
Investors can be excited, including the carpet of artificial intelligence (AI), the emergence of quantum calculation, the prospect of future interest rate reduction, and a certain upcoming decision whether President Donald Trump’s rates will remain. Anything that makes Wall Street is more predictable is highly valued by investors.
However, the new heights of the S&P 500, Dow Jones and Nasdaq Composite are not the only story. We have just seen that the stock market is doing what happened only three times (including the latest incident) since 1871. January And based on what the story tells us, it is bad, at least in the coming quarters and / or years.
Image Source: Getty Images.
Although the S&P 500 record highs, Dow and Nasdaq Composite are no less important news about what is happening to shares.
There is no one suitable project to set the record straight to determine the individual stock or wider market. Everyone has their own attitude and attitude towards what is cheap and what is expensive, which first does the stock market so unpredictable.
Despite this subjectivity, there is one tool that leaves no mistakes. This metrics can turn back to 150 years and give the nearest thing compared to apple comparison, evaluating the relative cheap or expensive of the Wall Street reference index, the S&P 500. I am talking about the famous Shiller-to-the-Heanns (P/E) ratio, which is also called cyclically adjusted p/e (cape rare).
What makes Shiller P/E different from the traditional P/E is taken into account. Since the traditional P/E is obtained by dividing the company’s shares from its rear 12 -month profit per share (EPS), the Shiller P/E is based on average inflation in the EPS in the last 10 years. Calculating and adjusting the history of the EPS for a decade, it ensures that dance events and downs will not make this assessment tool useless.
At 154 years until 1871. In January, the S&P 500 Shiller P/E on average was 17.29 on average. You will note that most of the last 30 years have spent more than this 154-year average, which reflects the democratizing internet access to information, as well as in 2010, interest rates are decreasing.
S&P 500 Shiller Cape Relationship Data provided by Ycharts.
However, given what the story tells us is limited, how much these assessment contributions can be stretched.
October 8 The S&P 500 Shiller P/E is closed in point 40.32, which is a high watermark for the current bull market rally that began three years ago. It is also a 133% bonus for the average multifaceted more than 154 years.
The true eye -operator compares this maximum 40.32 reading in the current bull market with previous peaks in other continuous bull markets.
From 1871 There were only three cases where the S&P 500 shiller p/e exceeded 40:
1999 In December, on the heels of the euphoria on the Internet, the Shiller P/E achieved the highest result, which was the highest reading of all time, 44.19.
In the first 2022 January A week, when the fiscal stimulus lined consumer pockets, the Shiller P/E exceeded 40 hundred.
2025 October 8 It reached a high height of 40.32.
Although we cannot accurately anticipate the future, the past is completely clear what will happen next. After 1999 December Peak S&P 500 and Nasdaq Composite in 2002 Released 49% and 78% of their values respectively. Meanwhile, the S&P 500 lost 25% of its value in 2022. In the bear market.
In fact, since 1871, There were only six cases where the Shiller P/E exceeded 30 (at least two months) through the permanent bull market. After each of the previous five events, the S&P 500, DOW and / or NASDAQ compositional compositional compositional compositioned from 20% to 89%.
Image Source: Getty Images.
Based on what the story tells only, the main arrows of Wall Street are directed to a possible disaster. Although the Shiller P/E readings are not useful in determining when the property assessments will enter the correction or bear market, they indicate that the highest quality assessments are not well tolerated for a longer period of time.
But the great thing in history is that it can also offer insight.
On the one hand, the historical precedent shows us that the stock market corrections, and the bear market-and even occasionally, the elevator market disaster, as we have seen in early April-are normal and inevitable aspects of the investment cycle. Even non -fiscal and monetary policy movements cannot prevent these downs.
However, for almost a century, stories show that the most significant Wall Street decreases-its 20% or more bear market is decreasing-it is simply short-term.
When the S&P 500 officially entered the current bull market in 2023. June (Ie, as it rose firmly 20% from October 2022, the Bear Market Low), the Bespoke Investment Group researchers published a data set to X (formerly Twitter), which compared each S&P 500 Bull and Bear Market to the start of the Great Depression in 1929. September
Adech has investigated a total of 54 events (27 bear market and 27 bull markets) and found quite a difference between a taller and lower comparative index of the calendar day movements. Although the typical S&P 500 Bear market survived only 9.5 months (286 calendar days), the average bull market remained for about two years and nine months (1,011 calendar days), 2023. June
In addition, the Bespoke data set notes that the longest S&P 500 Bear market since 1929. September It took 630 calendar days. If the current bull market was extrapolated to this day, it would be 14 of the 27 bull markets lasting longer than 630 calendar days.
Statistically speaking, the disaster can wait for stock in a short period of time. However, after looking at one or several decades, the story convincingly indicates that long -term investors are continuing to grow their wealth well.
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Sean Williams has no position in any of the above shares. The Motley fool has no position in any of the above stocks. The Motley fool has a disclosure policy.
We have just seen that the stock market is doing what happened only 3 times from 1871. – and 2 previous events caused a disaster initially at The Motley Fool
