For the better part of the last four years, Wall Street’s bull market has been unstoppable. Aside from the short-lived tariff tantrum in April 2025 and a brief pullback associated with the Iran war earlier this year, the time-tested Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and tech-focused Nasdaq Composite (NASDAQINDEX:^IXIC) have all blasted to several record highs this year.
Catalysts have been abundant and 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 artificial intelligence infrastructure build-out
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Considerably better-than-expected corporate earnings
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Record share repurchases by S&P 500 companies
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History-making initial public offering activity
While more than a century of history has decisively shown that Wall Street’s major stock indexes rise over extended periods, things may not be as ideal as the Dow, S&P 500, and Nasdaq Composite make them appear.
Image source: Getty Images.
Currently, we’re witnessing the stock market do something that’s only been accomplished three times over the last 156 years. When this signal appears, it has consistently foreshadowed significant declines to come for Wall Street.
Stock valuations have reached rarified territory
Make no mistake about it, there are always headwinds threatening to end Wall Street’s bull market, such as rapidly rising margin debt and the potential for an extended Fed rate-hiking cycle. But if history repeats, it’s premium stock valuations that offer the direst outlook for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
To be upfront, “valuation” is a tricky subject. Without a one-size-fits-all blueprint for evaluating and valuing individual companies or the broader market, it’s not uncommon for emotions or subjectivity to factor into the equation. Subjectivity and emotion are what make it virtually impossible to accurately forecast short-term directional moves in individual stocks or major stock indexes.
There is, however, one valuation tool that, when backtested, has demonstrated an uncanny ability to accurately forecast the future for Wall Street’s major indexes. I’m talking about the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio, which is also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).
