Nothing it seems can derail this bull market, not sticky inflation, nor geopolitical conflict, nor fears of AI (both as an investing bubble and a threat to humanity, nor rising oil prices, nor even the Fed's first interest rate hike in three years. The S&P 500 (SNPINDEX: ^GSPC) has risen by double digits in 2026, and if the gain holds, this will mark four straight years of double-digit returns, a streak the index hasn't pulled off since the late 1990s. Act 2 Could Be 15x Bigger.
Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout.
Continue » That said, if one time-tested valuation metric is any guide, the market may be more vulnerable than it looks. The S&P 500 Shiller CAPE Ratio is a nifty metric that gauges how expensive the broader market is relative to its long-term earnings. It doesn't predict market crashes.
But when it reaches a certain extreme, it could be a warning that future returns will be harder to get. The average CAPE is about 18, and right now it is above 40. It's worth noting two periods on the chart above.
In the late 1920s, the CAPE figure rose quickly in a short period, before peaking in 1929. Something similar happened in the late 1990s, when the CAPE peaked at 44. Both periods were punctuated by two of the worst market crashes in history.
Since late 2022, the CAPE has been marching upward. Although that doesn't mean a crash is imminent, it does make the broader stock market the most expensive we've seen since the dot-com era. There's far less room for disappointment; in effect, there could be more volatility if expectations aren't met.
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