The S&P 500 has seen double-digit growth for three consecutive years, with investors favoring growth stocks in innovative fields like AI and quantum computing. A lower interest rate environment has also boosted stocks, but the market is now at historically high valuation levels, signaling a potential decline in 2026.

Last year, import tariffs and fears of an AI bubble briefly impacted the market, but optimism prevailed. The S&P 500 Shiller CAPE ratio is at an all-time high, indicating expensive valuations. History shows that after peaks in valuation, the index tends to decline, suggesting a possible pullback in 2026.

Investors should be cautious of expensive stocks and focus on quality players for long-term gains. While the market may experience a brief decline in 2026, strategic investing in undervalued stocks could lead to significant returns. Consider looking beyond the S&P 500 for potential investment opportunities with high growth potential.

Read more at Nasdaq: The Stock Market Is Doing Something Witnessed Only 2 Times in 153 Years — and History Is Very Clear About What Happens in the New Year.