U.S. stocks extended their rally to fresh record closing highs, with the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all climbing during the first week of June. The move was supported by a continued tech-led appetite for long-term growth—alongside a stream of positive corporate results—even after a brief pullback earlier in March.
While investors have leaned into themes such as artificial intelligence and early-stage advances in quantum computing, valuation metrics are also flashing red. The S&P 500’s cyclically adjusted price-to-earnings measure is approaching the highest levels seen during the dot-com era, a setup that historically has preceded major market drawdowns.
Key takeaways
- Price move: The Dow, S&P 500 and Nasdaq Composite reached new record closing highs in early June.
- Catalyst: Investor demand for long-duration growth, backed by better-than-expected earnings and heavy share repurchases, helped drive the rally.
- Valuation pressure: The S&P 500’s Shiller P/E is nearing dot-com-era valuation territory.
- Implication for investors: History suggests that elevated cyclically adjusted valuations have often been followed by substantial declines, even if long-term returns have still generally rewarded patience.
What drove the rally to record closing highs
According to the article, the equity market’s resurgence has been underpinned by multiple growth catalysts and supportive capital-market activity. Artificial intelligence has remained central to investor optimism, lifting expectations for future earnings power and widening valuation multiples. The early proliferation of quantum computing has also contributed to the broader “next technology” narrative, particularly in growth-heavy segments of the market.
Beyond the technology theme, the report pointed to strong corporate performance and financial engineering. It cited record S&P 500 share buybacks in 2025 and “better-than-expected corporate earnings” as additional supports for prices. It also referenced IPO enthusiasm linked to Space Exploration Technologies, reflecting how risk appetite has extended beyond traditional megacap tech.
The rally has not been smooth. The article noted a short-lived swoon in March, but despite that interruption, the major indexes pushed to new closing records, suggesting dip-buying behavior remained intact.
Why valuation metrics are the focal point now
The most prominent concern highlighted in the article is valuation. It argues that the market’s premium pricing is increasingly difficult to justify if earnings growth fails to keep pace.
According to the report, the traditional price-to-earnings ratio can be misleading during periods when earnings fluctuate, because it relies on trailing 12-month earnings. Instead, the article emphasizes the Shiller P/E (also called the cyclically adjusted P/E, or CAPE), which uses inflation-adjusted average earnings over a decade. By extending the time window, the measure aims to provide a more stable comparison across market cycles.
The article states that the Shiller P/E data series has been back-tested to January 1871 and averaged about 17.4 over that span. It then points to the dot-com era, when the S&P 500’s Shiller P/E reached an all-time high of 44.19 in the late 1990s. The current setup, according to the report, has brought the cyclically adjusted valuation near that peak within the context of a continuous bull market.
Market reaction to elevated CAPE in past cycles
Historically, the article notes, Shiller P/E ratios above 30 have often preceded trouble for Wall Street. It said the measure has exceeded 30 on six occasions since January 1871 and that, excluding the present, the prior five occurrences were followed by declines in the Dow Jones Industrial Average, the S&P 500 and/or the Nasdaq Composite ranging from 20% to 89%.
The report further highlighted that the two prior instances when the CAPE ratio topped 40 aligned with some of the most severe drawdowns in modern U.S. market history—citing the dot-com bubble period and the 2022 bear market. While the article framed this as a warning signal rather than a timing tool, the central message for investors is that extremely high cyclically adjusted valuations have tended to coincide with elevated risk.
Still, the same historical approach also points to a second, more patient interpretation. The article argues that time and disciplined investing have tended to outperform the temptation to react to interim volatility.
Bigger picture: what history suggests about bull and bear market durations
According to the article, Bespoke Investment Group analyzed the calendar length of every S&P 500 bull and bear market since the start of the Great Depression. The report said none of the 27 S&P 500 bear markets since September 1929 lasted longer than 630 calendar days and that bear market troughs occurred after an average of 286 calendar days (about 9.5 months). In contrast, the typical bull market persisted for 1,023 calendar days over the last 97 years, with more than half lasting longer than the longest bear market.
The report also cited Crestmont Research’s work on rolling 20-year total returns of the S&P 500 since 1900. It said that across 107 rolling 20-year periods examined, all produced a positive annualized return. The article used this to reinforce its broader argument: even when valuations become stretched, longer holding periods have historically buffered investors against the worst episodes.
What to watch next
With the indexes at record closing levels and cyclically adjusted valuation near historic extremes, investors will likely focus on whether earnings growth can justify elevated multiples. The key near-term risk for markets remains that forward returns may be constrained if valuations compress faster than fundamentals improve. Investors should also watch the next earnings cycle for guidance on margins and demand, alongside macro developments that influence discount rates—particularly expectations for interest-rate policy—given how sensitive high-multiple equities are to shifts in the outlook for rates.
