In 2025, major stock indexes like the S&P 500 and Nasdaq have seen substantial gains. However, a historically accurate metric is signaling potential trouble ahead for the market in 2026. The Shiller P/E Ratio, which measures valuation, suggests a significant decline could be on the horizon.

The Shiller P/E Ratio, based on average inflation-adjusted EPS over the past decade, currently sits at a multi-decade high of 40.46. This level has only been surpassed once, during the dot-com bubble burst. The metric indicates the market may be overvalued, potentially leading to a severe correction.

Historically, Shiller P/E Ratios above 30 have preceded double-digit declines in the S&P 500. If the ratio were to retreat to 27, it could mean a 30% drop in the index’s value. While timing is uncertain, the metric suggests a significant sell-off could occur, possibly dropping the S&P 500 below 5,000 in 2026.

Despite the potential for a market downturn, history shows that significant declines can present long-term investment opportunities. Bear markets tend to be shorter-lived than bull markets, and long-term investors have historically seen positive returns by holding through market cycles.

While short-term market predictions are challenging, historical data can guide long-term investment strategies. The potential for a market correction in 2026 underscores the importance of a diversified portfolio and a long-term perspective when investing in the stock market.

Read more at Yahoo Finance: Will the S&P 500 Fall Below 5,000 in 2026? A Historically Flawless Predictive Metric Weighs In.