Is the Stock Market Going to Crash This Year? History Could Not Be Any Clearer on What Should Happen in 2026.

Ever since artificial intelligence (AI) emerged as the stock market’s next big megatrend, it’s been relatively difficult losing money as an investor. Between 2023 and 2025, the S&P 500 and Nasdaq Composite posted average gains of 21% and 30%, respectively.

This year has been a different story entirely. So far in 2026, a number of different factors have caused the S&P and Nasdaq to plummet. Whether its geopolitical tension, uncertainty over the midterm elections, or the direction of the Federal Reserve’s policies, generating market-beating growth has suddenly become a challenge.

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All the while, the stock market is flashing an ominous warning that investors haven’t seen in over two decades. Let’s explore what direction stocks could be headed later this year and assess how investors should navigate ongoing volatility.

There are many different ways to value stocks. Traditional methods used by Wall Street analysts include the price-to-sales (P/S), price-to-earnings (P/E), or forward P/E ratios. Each of these metrics can be helpful when benchmarking a company against a set of industry peers. Where these multiples fall short, however, is their inability to account for one-time anomalies. In other words, these ratios are highly sensitive to nonrecurring business trends.

One valuation technique that mitigates this risk is the cyclically adjusted price-to-earnings (CAPE) ratio. The CAPE ratio accounts for 10 years’ worth of financial data — capturing trends in earnings growth and stock prices across various market cycles that may have experienced unusual levels of inflation or interest rate adjustments.

Currently, the S&P 500 Shiller CAPE ratio is 39. (It takes its name from the economist Robert J. Shiller, who invented it.) This is the second-highest CAPE reading in history. The only other time it was more inflated relative to its current level was in 2000 — during the peak of dot-com euphoria.

There are two notable periods in financial history where the CAPE ratio soared to abnormal levels. The first was in the late 1920s. The stock market crashed shortly after the CAPE reached its peak during this period, triggering the Great Depression.

As referenced earlier, another notable instance in which the market reversed course after the CAPE ratio soared to unsustainable levels occurred after the dot-com bubble burst. Given these trends, history suggests the stock market is headed for an epic crash sometime in 2026.