The S&P 500's valuation has climbed to one of the highest levels on record, with its cyclically adjusted price-to-earnings ratio sitting only a few points below its dot-com-era peak. Roughly three-quarters of American investors say they are worried about a downturn in 2026, and history shows similar valuation spikes have preceded market declines.
The S&P 500 is trading near the richest valuation level in more than a century, and investors have noticed. Roughly three-quarters of American investors said they were concerned about a market downturn in 2026, according to a July survey by MarketWise.
CAPE ratio nears dot-com-era extremes
Its cyclically adjusted price-to-earnings (CAPE) ratio, which compares a benchmark's price with its average inflation-adjusted earnings over the past decade, has climbed to about 41.4 for the S&P 500 — just a few points below the all-time high reached during the dot-com era. That ratio has averaged only 16 to 17 over the past 150 years and has crossed the 30 marker only a handful of times, most notably ahead of the Great Depression and during the tech bubble of the late 1990s. Each time the ratio has risen steeply in a short stretch, a market decline followed.
The benchmark itself last traded at 7,757.64, up 0.62%.
How investors can prepare for a downturn
If a correction or crash arrives, Fool's analysis says the best bear market stocks are those with fortress balance sheets — low debt and abundant cash — paired with steady earnings growth and consistent cash flow. Companies with predictable earnings, including consumer staples and healthcare stocks, have tended to hold up better in downturns because people keep buying necessities regardless of what the market does. Spreading money across multiple sectors, rather than concentrating in one, could cushion the blow if a single area takes the brunt of a decline.
Source: The Motley Fool
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