Asia News
Look up the word 'resilient' in the dictionary, and you're likely to see a picture of the U.S. stock market. Despite concerns like above-average inflation, the Iran war, President Donald Trump's tariffs, and high Treasury bond yields, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all hit record highs this year. While markets have historically risen through periods of worry, corrections and bear markets are inevitable.
The stock market is cyclical, and valuations matter. The Shiller P/E Ratio, based on average inflation-adjusted earnings over the past decade, has been used to gauge market health. As of August 2026, the CAPE Ratio stands at 42.04, the second-highest in nearly 156 years. The last time it exceeded 40 for an extended period was during the dot-com bubble (1999–2000), which led to a 49% drop in the S&P 500 and 78% in the Nasdaq. Even the brief 2022 spike above 40 was followed by a nine-month bear market.
History suggests that ultra-premium valuations are unsustainable. While corrections are normal, the longer-term outlook remains positive. The current bull market, now the 9th longest in S&P 500 history, has lasted over 3.6 times as long as the average bear market. Over 107 rolling 20-year periods, the S&P 500 has always delivered positive returns, reinforcing the value of long-term investing over short-term timing.
For investors, this presents an opportunity to capitalize on potential downturns while maintaining a long-term perspective.
Source: The Motley Fool
