With the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite hitting all-time highs last week and the Dow Jones Industrial Average doing so the previous week, stock valuations have entered the danger zone.
At only one other time in history has the Shiller P/E ratio been this high
This inflation-adjusted gauge, which looks at valuations over 10 years, stands today at 42.6. The only other time it was higher was in November 1999, when it hit 44.2. What followed was a nearly two-year bear market.
The 12-month-trailing S&P 500 P/E ratio is also at its highest point since 2000 at 30, while the Nasdaq-100 is slightly above average at 29.7, but nowhere near the 78.2 it hit in 2002. The Shiller P/E has been a pretty reliable gauge over the years, as the market has suffered either a correction or bear market after it spiked in 1929, 1965, 1999, and 2021. While it is impossible to predict the future, knowledge of history can prepare us for any eventuality.