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The S&P 500's Shiller price-to-earnings (P/E) ratio has reached a historic high of 38.23, sparking concern among investors about potential market corrections, according to a report from The Motley Fool. This reading marks only the third occurrence during a bull market in 154 years, following similar peaks prior to major downturns in 1999 and 2022.
The Shiller P/E ratio, which accounts for inflation-adjusted earnings over the past decade, reveals significant deviation from the historical average of 17.2. Historical trends indicate that such elevated levels have often preceded substantial declines in stock values, prompting worries of a repeat of previous market bursts.
Market analysts also note other warning signs, including an unprecedented year-over-year decline in the U.S. M2 money supply, the longest yield-curve inversion on record, and various valuation tools signaling potential trouble. "While this doesn't predict the timing of a downturn, it does highlight risks involved for investors," analysts stated. As Wall Street navigates this uncertain landscape, the emphasis remains on the historical pattern of cycles, with bear markets typically being shorter than bull markets.