The Stock Market Is Doing Something Observed Only Once Before. History Is Clear About What Comes Next
Katie Brockman, The Motley Fool
Tue, August 11, 2026 at 3:50 PM GMT+5:30
5 min read
After months of stagnating growth, major market indexes have rallied. The S&P 500 (SNPINDEX: ^GSPC), Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI) have surged by 6%, 9%, and 5%, respectively, since late July alone, as of this writing
That doesn’t necessarily mean investors are in the clear, however. An unexpectedly dismal jobs report last week suggests that the economy may not be as robust as previously thought. The market is also becoming increasingly concentrated in tech, with chip stocks alone making up roughly 14% of the S&P 500
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
This diminishing diversification could lead to greater risk during the next downturn, as a relatively small sector could have an outsize impact on the broader market. And right now, the market is sounding a warning sign that has occurred only once before — during the lead-up to the dot-com bubble burst
Is a stock market crash coming?
To be clear, it’s impossible to predict exactly when the next bear market or recession might begin. However, downturns are a normal part of the market’s cycle, so it’s a matter of when — not if — we face a pullback
The S&P 500 Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio is a metric that tracks the S&P 500’s valuation over time, helping gauge whether the index is overvalued or undervalued. Higher figures suggest that the S&P 500 is trading at a premium, and historically, stock prices tend to fall in the years following peaks
In the late 1990s, internet companies were soaring. The CAPE ratio surpassed 40 for the first time in history in January 1999, and a little over a year later, in March 2000, the dot-com bear market officially began
Fast-forward to more recent market activity, and the CAPE ratio is climbing yet again. It’s remained consistently above 40 since May of this year, which is only the second time in history that it’s stayed above this threshold
Now, this doesn’t necessarily mean a market crash is around the corner. After all, 40 is not a magic number that automatically triggers a bear market. But when the CAPE ratio is this high, it suggests that stocks are unusually richly valued — and investors may want to exercise caution
