The Shiller P/E ratio has climbed to 42—its highest level since the 1999 peak of 44—signaling stretched valuations as the S&P 500 hovers near its Aug. 7 record close of 7,757.
That metric matters because the only higher reading preceded the 2000 bear market, and the last bear market in 2022 cut stocks about 25% from January to mid-October.
Investors are being urged to trim unusually expensive holdings, especially growth names with elevated P/E ratios, and avoid speculative stocks without durable earnings support.
Portfolio defenses highlighted include broader diversification into value, international, small-cap and dividend stocks, plus bonds; Vanguard's model mix cites 36% U.S. stocks, 24% international stocks and 40% bonds.
The warning adds to broader concern that a nearly four-year bull run and rich valuations could leave portfolios exposed, even though the timing of any next bear market remains uncertain.