A sudden jolt for an AI-fueled rally
For nearly four years, Wall Street has moved in one direction. Since the 2022 bear market hit bottom, the Dow Jones Industrial Average has climbed 84%, while the S&P 500 and the growth-heavy Nasdaq Composite have both more than doubled, according to the reporting. The force behind that run has been spending on artificial intelligence infrastructure, with enormous sums poured into data centers acting as the market's main engine.[S1]
That momentum hit a wall on Oct. 22, when the Nasdaq Composite dropped 694 points, a 2.6% decline that stood as its biggest daily percentage loss since June 5. The size of the move has revived a familiar question among investors: whether a full stock market crash is on the horizon.[S1][S2]
Valuations and leverage flash warnings
History cannot dictate where major indexes go next, but the report notes it often hints at what may come. The market entered 2026 at its second-highest valuation on record, with the S&P 500's Shiller price-to-earnings ratio, also called the CAPE ratio, nearing 43 in early June against a 156-year average of 17.44. Since January 1871, the measure has topped 30 six times, including now, and each of the prior five episodes was eventually followed by declines of 20% to 89% across the Dow, S&P 500 or Nasdaq.[S1]
Borrowing is another warning light. Margin debt held by brokers, tracked monthly by FINRA, reached a record $1.502 trillion in June, and it rose 77% between April 2025 and June 2026. Since 1998, short-term jumps in margin debt of at least 65% have preceded severe losses for the three major indexes, the report states.[S1]
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Why perspective still matters
Even with several historically reliable indicators pointing to above-average risk of a crash or a significant decline, the report stresses that a crash is not assured. It argues that keeping perspective matters more than the gloomy historical parallels after a roughly 700-point single-day drop. Corrections, bear markets and crashes are described as ordinary parts of the investing cycle, and no fiscal or monetary policy can stop them from recurring.[S1]
Downturns do share one trait: they tend to resolve quickly. Data from Bespoke Investment Group cited in the report show that since September 1929, the average S&P 500 bear market, defined as a decline of 20% or more, bottomed after 286 calendar days, about 9.5 months. The typical bull market, by contrast, lasted 1,023 calendar days, roughly 3.6 times longer. On that record, the report concludes, long-term optimism has paid off, and the bleakest moments have often been where opportunity appeared.[S1]
