The Stock Market Sounds an Alarm for the First Time in Nearly 27 Years. Here Is What History Says the S&P 500 Will Do Next

The S&P 500 (SNPINDEX: ^GSPC) has gained 12% so far in 2026, extending a bull market fueled mostly by enthusiasm around artificial intelligence (AI). However, the rally has not been without some turbulence. Both the S&P 500 and Nasdaq Composite (NASDAQINDEX: ^IXIC) recently witnessed sharp declines as investors grapple with sticky inflation, elevated bond yields, and concerns about how the AI revolution is being financed. There's another reason investors should be cautious. The CAPE ratio and Buffett indicator suggest the stock market is historically expensive. In fact, the CAPE ratio has climbed above 40, a level previously sustained only during the dot-com bubble.