Investors have a wide range of choices when it comes to growing wealth. Options such as real estate, Treasury bonds, precious metals, and certificates of deposit each offer their advantages. Yet, over the long haul, stocks have delivered the highest annualized returns of any major asset class.
However, this path to prosperity is rarely smooth. Recent years have reminded everyone that stock market volatility is inevitable, with wild swings and sudden reversals leaving even experienced investors questioning what comes next.
As markets stand near record highs, a senior trading strategist from FTMX Global explores how current valuation signals, historical cycles, and investor psychology might shape what happens in the months ahead.
Record Highs and Whiplash Lows
Through the first part of 2025, the S&P 500 surged to new record closing highs, only to see swift corrections hit both the Dow Jones and S&P 500, and a full-blown bear market for the innovation-focused Nasdaq Composite.
In April alone, the market experienced the fifth-largest two-day percentage drop for the S&P 500 in 75 years, immediately followed by the single biggest one-day point gain in the index’s history. These extreme moves have left many wondering whether the path forward is one of steady gains or further turbulence.
What Rare Signals Are Telling Us Now
During times of uncertainty, market observers often look to history for guidance. While no single event or number can guarantee what’s next, some signals have shown powerful correlations. One of the rarest and closely watched indicators, the S&P 500’s Shiller price-to-earnings (P/E) ratio, also known as the CAPE ratio, has now reached a level that’s only been seen three times in the last 154 years.
The Shiller P/E ratio offers a unique perspective because it’s based on average, inflation-adjusted earnings over the prior 10 years. This long-term lens makes it less prone to being skewed by temporary economic events or growth stock mania.
- As of June 5, 2025, the S&P 500’s Shiller P/E stood at 36.52, more than double the historical average of 17.24, and just below its current cycle peak of 38.89 set in December 2024.
- Only three previous occasions since 1871 saw the Shiller P/E approach or surpass 40: December 1999 (before the dot-com bubble burst), January 2022 (just before a new bear market), and the recent highs.
- Whenever the Shiller P/E has stayed above 30 for two months or more, major stock indexes have later fallen by 20% to 89%.
While this ratio is not a timing tool, it has signaled, with historical consistency, that markets struggle to sustain extended high valuations for long.
Market Cycles: Why Long-Term Optimism Still Wins
Given the strong rebound in stock prices since April’s drop, many investors may find the idea of a significant pullback hard to accept. Yet, it’s important to remember that market corrections, bear markets, and even crashes are all normal elements of the investing journey. Neither monetary policy nor fiscal maneuvers can fully shield investors from these emotional, sometimes panic-driven periods.
But the numbers also tell a more hopeful story. According to data from Bespoke Investment Group:
- Since the Great Depression (1929), the average S&P 500 bear market has lasted 286 days (roughly 9.5 months).
- The longest bear market since 1929 lasted just 630 days in the mid-1970s.
- Bull markets, on the other hand, have lasted an average of 1,011 days, or nearly 3.5 times longer than the typical bear market.
- More than half of all bull markets have outlasted even the lengthiest bear market.
This pattern has played out over nearly a century: even after major setbacks, markets have always eventually reached new highs.
Why Staying the Course Matters
Despite the headlines and historical warnings, the real takeaway for investors may be the importance of perspective and patience. Short-term downturns are typically short-lived, while long-term gains have consistently rewarded those who remain optimistic and invested. The most successful portfolios on Wall Street have weathered downturns by not losing sight of the bigger picture.
A financial strategist from FTMX Global explains, “Valuations and historical cycles matter, but no single metric should dictate an investor’s entire approach. The market’s ability to recover and grow over time is what sets it apart as the world’s greatest wealth builder.”
Conclusion
Today’s markets are sending mixed signals: valuations are near historic extremes, but the cycle of bull and bear markets has always favored those who look beyond the latest dip. The Shiller P/E ratio warns that risk may be elevated, but history overwhelmingly supports the patient, optimistic investor.
As highlighted by the strategist from FTMX Global, understanding where we are in the cycle can inform decisions, but resilience and perspective are the real keys to growing wealth through the market’s inevitable ups and downs.
