The main objective of investing is to grow one’s purchasing power over time. It’s that simple. And nothing comes closer to doing just that than the stock market.
Recent performance has been quite impressive. The closely watched S&P 500 index (^GSPC +0.83%) has generated a total return of 300% in the past decade, well above its long-run average.
It’s impossible not to come away impressed by this stellar gain. However, the stock market is flashing a clear warning to investors. Here’s what history says could happen in 2026 and beyond.
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Now is a good time to understand the present clearly
After an above-average performance, it makes sense that the market’s valuation is also elevated. The cyclically adjusted price-to-earnings ratio (CAPE) is a widely followed metric that compares the S&P 500’s current price to the average of trailing 10-year earnings, adjusted for inflation. That’s a mouthful. But investors should know that a higher figure means things are more expensive.
The CAPE ratio right now is 39.2. That’s 54% higher than exactly 10 years ago. And the current level is in the same ballpark as the dot-com bubble period. Besides that short-lived tech boom, this data point has never been this inflated.
Analysis from Invesco, which looks at correlation data, reveals that over the next 10 years, investors can expect the S&P 500 to produce flat to slightly negative annualized returns. In other words, an expensive starting valuation doesn’t bode well for market participants.
Is now a good time to invest?
Exposed to this new information, your immediate reaction might be to dump all your equities. This is not the right approach, though. Investing is still a smart move right now. That’s because the market’s architecture is different these days.
The tech sector has become a dominant force in the economy. And some of the largest companies in this space are generally deserving of their massive valuations. Artificial intelligence is keeping the party going.
In 2023, assets in passive investment funds exceeded the money in active funds for the first time ever. This creates new demand for equities that wasn’t there before.
Investors cannot ignore currency debasement, either. Since the heels of the financial crisis in December 2009 to December 2025, the combined M2 money supply (cash, checking accounts, and liquid savings accounts) of the four leading central banks expanded by 159%. More liquidity has been injected into the system, which has supported asset prices.
These trends are showing no signs of letting up. And they could be a major driver of investment returns in 2026 and beyond. This should ease investor fears.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
