The Stock Market Just Flashed a Warning Sign Seen Only One Other Time Since 1890. History Couldn’t Be Any Clearer About What Happens Next
Bram Berkowitz, The Motley Fool
Sun, July 12, 2026 at 9:50 PM GMT+5:30
5 min read
- NVDA
+4.03% - ^GSPC
+0.42%
It’s been a fun few years for the stock market. Ever since the broader S&P 500 (SNPINDEX: ^GSPC) index crashed by 20% in 2022, the market has enjoyed a fast-and-furious bull run
Much of that has been driven by artificial intelligence (AI), as investors have poured into stocks they see as the largest beneficiaries of a technology that could fundamentally change every aspect of society
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 »
The question is whether AI will be a different supercycle than those before it, even during some of the most bullish times in stock market history
This theory will soon be put to the test, because the stock market just flashed a warning sign seen only one other time since 1890. History couldn’t be any clearer about what comes next
Stocks are testing all-time-high valuations
For investors who follow the market, it should come as no surprise that stocks are nearing all-time-high valuations. After all, while there have been some pullbacks along the way, the stock market has been on a multiyear bull run
Stocks have managed to overcome a banking crisis in 2023; one of the fastest-rising interest rate cycles in decades; a decrease in the Federal Reserve’s balance sheet, which effectively pulls liquidity out of the market; and President Donald Trump’s tariff rates on most of the country’s largest trading partners, which immediately sent the market into a steep sell-off. They have also bounced back from the Iran war, which has sent oil prices surging and even made investors forecast interest rate hikes later this year.
Despite all of this, the market has reached nearly all-time highs on several metrics, one being the S&P 500 Shiller CAPE ratio
This metric looks at the value of the S&P 500 compared to a 10-year average of inflation-adjusted earnings, which are used to smooth out irregularities in the economic cycle
S&P 500 Shiller CAPE Ratio data by YCharts
The chart above shows that the market has a Shiller CAPE ratio of nearly 41.4 at recent prices. That’s well over double the historical average and not far from the level reached during the dot-com bubble in 2000
That time period is similar to the current AI boom. The internet had just achieved mainstream adoption, and tech investors believed it would change everything. Companies were spending hundreds of billions on infrastructure, such as fiber-optic cables, to make the internet ubiquitous
