America's stock market bubble ready to BURST? The bull market celebrates four years of monster gains just as a chilling indicator flashes a dire warning

This week marks the four-year anniversary of the S&P 500’s bull market run – but just as Wall Street was getting out the champagne, an exotic indicator signaled that the impressive gains could be facing doom.

Bulls and bears are the spirit animals of the stock market, but professionals also attach strict definitions to these terms.

A bull market is an extended period when a stock market index rises 20 percent or more off a low point – and a bear market is one where an index falls 20 percent or more from a high point.

Right now, we’re at the very height of the four-year bull market. Since the S&P 500’s most recent low on October 12, 2022, the benchmark index has risen 118 percent – more than doubling in value.

This index tracks the value of five hundred of the biggest US public companies. It’s also the most widely followed benchmark for the US stock market, and four years of gains paints a robustly positive picture of the American economy.

Or does it? According to one widely followed measure of the index’s performance, the Shiller price-to-earnings ratio, the stock market is wildly overvalued, putting it at risk for a massive crash.

The higher the Shiller P/E ratio, the more overvalued stocks are. And this week it just hit its second-highest reading ever.

‘Put differently, the market’s impressive performance is masking its weaknesses, with only a handful of stocks truly driving the rally,’ said Motley Fool analyst Steven Porrello.

The Shiller P/E ratio compares stock prices to the amount of money the company behind each stock has earned over the past 10 years to help investors understand whether stocks are undervalued or overvalued.

One of the tool’s most useful elements is its decade-long time frame, which helps smooth out the impact of short-term moves caused by booms, manias, wars, recessions and other shocks.

Right now, the Shiller P/E ratio is 40, just shy of the all-time high of approximately 44 in November 1999, following one of the best bull markets ever seen, as the S&P 500 gained almost 20 percent each year from 1995 through 1999.

But the ratio’s high was followed by the dot-com crash, a two-year bear market where the S&P 500 declined almost 50 percent – and the tech-heavy Nasdaq Composite lost more than 75 percent of its value.

It wasn’t the first time the ratio appeared to predict the future of markets. In 1929, the Shiller P/E ratio surged to an all-time high of 31 in July – followed by the four-year bear market amid the Great Depression.

One of the reasons the Shiller P/E helps predict declining markets is because when investors pay sky-high prices for each dollar of earnings, there is less room for share prices to rise higher unless profits grow even faster.

According to Portello, ‘below the surface warning signs are sounding from every corner.’

He notes that market data shows 44 percent of the stocks that make up the S&P 500 stocks were down 20 percent or more from their recent highs. Almost one quarter of them were down at least 30 percent – and a few were down more than 50 percent.

‘The S&P 500, in other words, may look healthy and strong as an index, yet nearly half of its companies are struggling individually,’ he said.

This is all to say that investors should start looking past the bull market’s four years of gains and its current all-time highs – since they conceal weakness, with only a few gainers holding up the index.

According to Alexandra Semenova, a strategist at the Schwab Center for Financial Research, one irony of the big bull market run is that it’s never felt very ‘safe’ from imminent collapse.

She highlighted two major pullbacks that nearly derailed the run in a LinkedIn post – and inspired countless predictions that a US economic recession was imminent.

First was ‘liberation day,’ President Donald Trump’s ill-fated attempt in April 2025 to impose double-digit tariffs on nearly all imports.

The disastrous policy sent the S&P 500 down approximately 20 percent in the weeks leading up to the announcement – although the snap-back market recovery preserved the bull run.

Then there was the first month of the Iran war, when oil prices spiked to around $122 after Iran managed to keep the Strait of Hormuz closed – and stocks paid the price.

Among the other hurdles the long bull market has overcome: The return of high inflation, regional bank failures, the national debt surging to $40 trillion and the most forecasted recession ever – which finally never arrived.

But now, trouble in the artificial intelligence sector may finally be the hurdle markets cannot overcome.

Michael J Kramer, founder of Mott Capital Management, cautions that just because the Schiller P/E ratio is flashing a warning does not necessarily mean that markets will suddenly crash.

‘It’s really good at telling you what was going to happen in hindsight, but it’s not so great at telling you the timing of when it’s going to happen,’ Kramer told the Daily Mail

Kramer says it’s a great tool for understanding broader risks, but he wouldn’t advise investors to use it as a timing mechanism for knowing when the market could head south.

But here’s the truth regular investors should remember: Bull markets and bear markets come and go, and while it may feel terrifying to watch markets sink after a long run up, stocks still deliver great returns over the long term.

Over the last 100 years, through recessions and world wars, the S&P 500 (and its predecessor index) has delivered an annual return of nearly 10 percent.

That’s an excellent rate of return that dependably beats most other investment assets. However, it’s also a long-term average, so it doesn’t mean you’re guaranteed a return of 10 percent each and every year.

You need to hold pat through bear markets, and be prepared to knuckle through the volatility and stress. After all, there are no rewards without risk.