The US stock market is as expensive as the second highest in 154 years. What does history say?

How expensive are US stocks right now? The Shiller P/E (10-year average price-to-earnings ratio adjusted for inflation) recently soared to 40.33, the second highest in 154 years. The highest? 44.19 during the internet bubble in 2000.

In history, the Shiller P/E has exceeded 30 for more than 2 months only 6 times, and the previous 5 times did not end well:

• 1929: Just before the Great Depression, the Dow Jones fell by 89%.
• 1997-2001: Internet bubble, Nasdaq plummeted 78%
• 2017-2018: S&P 500 fell by 20%
• 2019-2020: Pandemic plummeted by 33%
• 2020-2022: Inflation crisis down 25%

This is the 6th time, and it's still at a high position. This makes a point clear: high valuations don't last long.

But there's a twist: although it's perilous in the short term, in the long run, it's a crushing victory. Data dating back to 1900 shows that any investor who can hold onto the S&P 500 for 20 years has never lost. They have profited through the Great Depression, two World Wars, financial crises, and pandemics… all of them have made gains.

Moreover, the comparison of the duration of bull and bear markets is also very interesting. Over the past hundred years, the average bear market of the S&P 500 lasted only 286 days (less than 10 months), and the longest did not exceed 630 days. However, bull markets lasted an average of 1011 days. In the long run, the number of rising days far exceeds the number of falling days.

Conclusion? The current valuation is indeed high-risk and may face adjustments. But for long-term investors, this is an opportunity - historically, every major drop has become the best entry point.