3 Concerning Numbers That Suggest the S&P 500 Could Be Due for a Crash
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As of Monday's close, the S&P 500 (SNPINDEX: ^GSPC) was up around 27% in 2024. That's a phenomenal performance after an already strong year in 2023 when it rose by 24%. It's impressive but at the same time, it also begs the question of whether the market is due for a correction.
While the stock market has been doing well, there are three concerning numbers that investors should pay close attention to, as they could be indicative of just how inflated the index has gotten and why a crash may be overdue.
1. The S&P 500 rose 16% or better in five of the past six years, which isn't typical
The index has been doing well for several years, far better than normal -- its long-term average annual return is around 10%. What's remarkable is that in five of the past six years, with 2022 being the lone exception, it has risen by at least 16%.
| Year | Return |
|---|---|
| 2024 | 26.9%* |
| 2023 | 24.23% |
| 2022 | (19.44%) |
| 2021 | 26.89% |
| 2020 | 16.26% |
| 2019 | 28.88% |
Data source: YCharts. *Current return as of Dec. 9.
To put into context just how outstanding this is, prior to the years noted above, the S&P 500 achieved this feat (16% returns or more) five times in the past 20 years. Large returns like this have typically been sprinkled out over the years rather than clumped together as they have been recently. These aren't typical returns for the market, and the risk is that investors may be expecting them to be, leading to inflated expectations going into next year.
While bounce-back years may not be uncommon after a tough year, such as the one the market experienced in 2022, it has more than made up for that downturn with many top growth stocks and the S&P 500 now trading at record levels.
2. The S&P 500 is up 166% since the start of 2019
Another way to highlight the S&P 500's impressive performance is to simply look at its impressive gains since 2019. If you invested in the index back then, you would have more than doubled your money, as it has risen by 166% (when including dividends) over that time frame.
That averages out to a compound annual growth rate of 17.7%, which is far higher than its long-run average of just 10%. This factors in the off year in 2022 and shows how well the market has done even with such a bad performance included within those results.
3. The Shiller P/E ratio is at 38.5
The Shiller price-to-earnings (P/E) ratio is an effective way to measure how expensive valuations are in the stock market because it compares the S&P 500 to inflation-adjusted earnings over the past decade. This smoothing effect can give investors a better, longer-term perspective on how expensive valuations are right now.