If a Stock Market Crash Is Coming, History Says This Is the Smartest Move to Make

Key Points:

• The S&P 500's cyclically adjusted price-to-earnings (CAPE) ratio has remained above 40 for three consecutive months, a level last seen before the dot-com bubble crash, indicating potential overvaluation as it is more than double its historical average.
• The Buffett indicator, which compares total U.S. stock market value to GDP, is currently around 240%, double the 120% threshold Warren Buffett considers as overvalued, further signaling elevated market valuations.
• Despite these warning signs, the market's composition has shifted significantly, with technology companies dominating and benefiting from rapid advancements in artificial intelligence, which may justify higher valuations and reduce cyclicality.
• Forward-looking metrics, such as the 12-month forward P/E ratio of 19.5 for the S&P 500, suggest the market is not overvalued compared to historical averages, highlighting the limitations of backward-looking valuation measures.
• Given the uncertainty about a potential market crash, experts recommend dollar-cost averaging into broad-based index ETFs like the Vanguard S&P 500 ETF (VOO) to mitigate timing risks and capitalize on long-term market growth.