Historically, the S&P 500 has been one of the world's greatest wealth-generating machines, returning an average annual return of over 10% since its launch in 1957. But it has been far from smooth sailing. And if you bought shares at the wrong times (such as the peak of the dot-com bubble in 2000 or before the great financial crisis of 2007-2008), it would take several years to recover the value of your original investment.
Is 2026 another bad time to buy? While it's impossible to know for sure, several historical parallels offer clues about what might happen next. 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 » The cyclically adjusted price-to-earnings (CAPE) ratio is a stock market valuation metric that compares the S&P 500's current price with its inflation-adjusted earnings over the past decade.
The long duration of the comparison helps smooth out the impacts of the business cycle, allowing investors to identify periods when shares are unusually pricey. Right now, the market has a CAPE ratio of 42.5, a level not seen since it peaked at 44.2 in 1999 during the dot-com bubble. And there are some sharp parallels between the two time periods.
Just as in the late 1990s (when the internet was becoming mainstream), the world is experiencing a technology megatrend: Generative artificial intelligence (AI), which promises to revolutionize the way we live and do business. In both scenarios, the "pick and shovel" providers that supply hardware and physical infrastructure capture the lion's share of early profits while frontier software remains speculative. Stock market crashes occur because people assume the current bubble will be different from the last bubble.
That said, the current generative AI boom differs starkly from the dot-com craze over 25 years ago. Unlike the late-1990s rally, which was driven by unprofitable companies with shaky business models, today's boom has been led by large and successful technology companies like Nvidia. The chipmaker earned an eye-popping net income of $58.3 billion in the first quarter alone.
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