The Stock Market Sounds an Alarm for the First Time in Nearly 27 Years. Here Is What History Says the S&P 500 Will Do Next.

The S&P 500 (SNPINDEX: ^GSPC) has gained 12% so far in 2026, extending a bull market fueled mostly by enthusiasm around artificial intelligence (AI). However, the rally has not been without some turbulence. Both the S&P 500 and Nasdaq Composite (NASDAQINDEX: ^IXIC) recently witnessed sharp declines as investors grapple with sticky inflation, elevated bond yields, and concerns about how the AI revolution is being financed.There’s another reason investors should be cautious. The CAPE ratio and Buffett indicator suggest the stock market is historically expensive. In fact, the CAPE ratio has climbed above 40, a level previously sustained only during the dot-com bubble

The CAPE ratio has approached dot-com territory

The cyclically adjusted price-to-earnings (CAPE) ratio was popularized by economist Robert Shiller. A conventional price-to-earnings (P/E) ratio compares stock prices with earnings over a single year. By contrast, the CAPE ratio divides the S&P 500’s price by the average of 10 years of inflation-adjusted earnings. By taking a longer-term view, CAPE readings smooth out fluctuations in profits affected by recessions or unusual booms. https://finance.yahoo.com/markets/stocks/articles/stock-market-sounds-alarm-first-192000957.html