Which market warnings deserve your attention, and which don't.
We test headline warnings against decades of market history and show which have mattered, and where they stand today.
Average yearly return after inflation, with dividends, implied by each measure's history from today's level; typical miss is 4 to 5 points a year. The Buffett indicator and market cap / GVA are beyond their historical range, so those bars are extrapolations.
| Past peak | CAPE | Next 10 years, per year |
|---|
Each dot is a January: CAPE at the start (across) and the next 10 years' return after inflation (up). Hover for the year; the dashed line is today.
Five standard valuation measures. All point the same way today.
| Measure | Today | Compared with history | Record | What it implied for the next 10 years* |
|---|
*Implied returns extend each measure's historical link to the next 10 years. The Buffett indicator and market cap / GVA have never been this high, so those two figures are extrapolations, not observed outcomes.
Long-time investors have watched stocks rise for decades. Do today's prices matter if you simply hold?
Partly. History gives three answers, and which matters depends on when you need the money. All figures after inflation, dividends reinvested.
Since 1881, every 20-year holding period made money after inflation except one (mid-1901, down 4%), including all that began with CAPE above 30. Over 15 years, about 4% of starts lost money. The periods overlap: only about seven fully separate 20-year stretches exist.
| Bought at the peak in | Worst drop | Years to get even |
|---|---|---|
| Sep 1929 (CAPE 33×) | −77% | 7* |
| Jan 1966 (CAPE 24×) | −41% | 17 |
| Aug 2000 (CAPE 43×) | −52% | 13 |
| Dec 2021 (CAPE 38×) | −24% | 2 |
Over 10 years, 6 in 10 starts with CAPE above 30 lost money, vs about 1 in 8 overall.
*Briefly back to even in late 1936, then fell again in 1937; the lasting recovery took longer.
Selling to cover living costs during a slump locks in losses that later gains can't fully undo, so the starting point matters far more for retirees than for savers. The table below shows how much.
| Starting valuation (CAPE) | Typical amount left after 10 years | After 20 years | Starts below $1M after 10 years |
|---|
Today's dollars; "typical" is the median starting month in each group. Bonds are 10-year Treasuries (Shiller data); no fees or taxes. The "above 30×" group rests on three episodes (1929, 1997 to 2002): a rough guide.
One more thing: stocks and bonds are moving together, as in the 1970s, so bonds may cushion less than expected. See "Do bonds still protect you?"
How big a drop to plan for: since 1950, a 60/40 portfolio fell 20% or more within three years in 36% of starts like today's (CAPE above 30), vs 5% from cheap ones. See "How deep could the next drop be?"
Over a retirement's first 10 years, starting valuation has been among the biggest factors: from the most expensive starts, a typical 60/40 retiree was down about a third; from cheap ones, well ahead. Over 20 years, inflation mattered as much: the worst outcomes began in the mid-1960s, when prices were average but inflation took off. Today has both high valuations and above-target inflation. If you won't need the money for 15 to 20 years, today's prices mostly change how much you earn. If you live off your savings, review how much of your spending depends on stocks and how well the rest is protected from inflation. General information, not advice.
Is the whole market rising, or just a few big names? Is the trend still up?
The signals behind "recession coming" and "inflation is back" headlines. They say more about the economy over the next year or two than about stocks next month.
What it costs to borrow. Higher rates make bonds more competitive with stocks, and lenders often get nervous before stock investors do.
How nervous investors are. Fear makes headlines, but it has been a better sign for the year ahead than calm.
Each claim tested against S&P 500 history. Some hold up; several don't.