History Says a Turning Point Is Likely Coming for the S&P 500 in 2026

• The S&P 500 is presently trading astatine a precise precocious CAPE ratio.

• Only erstwhile successful past has the scale traded astatine a higher CAPE ratio -- during the dot-com bubble.

• Now much than ever, deliberation and caution substance erstwhile picking stocks.

• 10 stocks we similar amended than S&P 500 Index ›

Every twelvemonth astir this time, my newsfeed is flooded with predictions of however the banal marketplace volition spell successful the caller year. While evidently clickbait, immoderate of these articles are well-reasoned, and others are small much than a conjecture -- and they're astir ne'er right.

Let maine preface my prediction with an honorable caveat -- 1 that, for the seasoned capitalist retired there, is apt unneeded: Markets aren't predetermined, and nary one, not adjacent the astir skilled integer scryer, tin archer you with implicit certainty what volition hap successful the caller year.

But radical can conjecture what's apt to hap oregon what, successful the past of the market, has happened nether akin circumstances. If the result of 1 peculiar valuation metric holds existent (as it has historically), 2026 volition either beryllium different blistery twelvemonth -- oregon 1 successful which a greater downward inclination yet asserts itself.

Over the past decade, the S&P 500 (SNPINDEX: ^GSPC) has had a magnificent run. As of Dec. 30, the S&P 500 has gained astir 230% implicit the past 10 years, which works retired to a compound yearly maturation complaint (CAGR) of astir 12.6%.

Not lone is that higher than its astir 10% semipermanent CAGR implicit the past 97 years, but it's besides the benignant of above-trend decennary that tin crook an archetypal lump sum of $100,000 into a nest ovum northbound of $330,000.

The S&P 500 has had its ups and downs passim the past 10 years. But 1 reddish emblem hidden successful its wide upward ascent mightiness beryllium sending a warning: Today's marketplace looks pricy, adjacent erstwhile you creaseless retired the bully years and the bad.

I'm talking, of course, astir the cyclically-adjusted price-to-earnings ratio (CAPE ratio), oregon Shiller price-to-earnings ratio (P/E). This marketplace heuristic is designed to creaseless retired volatility, similar recessions and short-term nett spikes, by averaging inflation-adjusted net implicit the anterior 10 years. It gives investors a clearer consciousness of whether the marketplace is genuinely costly oregon distorted by a concern cycle.

Simply put, the S&P 500 trades astatine a historically precocious CAPE ratio. How historic? Try this: It has happened lone once earlier 2025 since information was recorded successful 1871. By humanities standards, the S&P 500's CAPE is successful territory traversed by the dot-com bubble.