Sean Williams, The Motley Fool
7 min read
For the better part of the last 3.5 years, the stock market has been unstoppable. The timeless Dow Jones Industrial Average (DJINDICES: ^DJI) just blasted to a fresh all-time high, while the benchmark S&P 500 (SNPINDEX: ^GSPC) and technology-fueled Nasdaq Composite (NASDAQINDEX: ^IXIC) vaulted to record highs in early June.
The catalysts behind this historic rally include (but aren’t limited to):
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 »
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The evolution of artificial intelligence (AI)
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Better-than-expected corporate earnings
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Investor euphoria for high-profile stock splits
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Excitement over mega-initial public offerings
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Record S&P 500 share buybacks in 2025
Though history has conclusively shown that Wall Street’s major stock indexes rise over long periods, it also tells us that bull markets aren’t indefinite. While no correlated event or data point can ever guarantee what’s to come on Wall Street, some aspects of history are better predictors of the future than others.
Currently, the stock market is doing something that professional and everyday investors have observed just one other time since January 1871 — and it has worrisome implications for Wall Street.
Investors won’t see this every day…
At any given time, there are always headwinds threatening to upend the stock market. For example, the threat of interest rate hikes can stymie the AI data center build-out. Likewise, outstanding margin debt is soaring, and a dramatic uptick in risk-taking has never been a good thing for the stock market.
But there’s arguably no greater red flag on Wall Street at the moment than stock valuations.
To state the obvious, there isn’t a one-size-fits-all blueprint for evaluating public companies or the broader market. What one investor considers pricey might be seen as a bargain by another. This subjectivity is one of the main reasons it’s so difficult to accurately forecast short-term directional moves for Wall Street’s major indexes.
Most investors rely on the time-tested price-to-earnings (P/E) ratio when valuing public companies. The P/E ratio is calculated by dividing a company’s share price by its trailing 12-month earnings per share (EPS). While the P/E ratio is a foundational tool for quickly evaluating mature businesses, it often struggles with growth stocks and during recessions (when EPS can turn negative).
