Even the most casual market observer knows that stocks have been on a tear. The headlines have focused on record highs, AI breakthroughs, and companies posting margins that seem to defy gravity. But behind the optimism lies a quieter story—one written in valuation ratios and history books—that suggests we might be entering a period where the market, quite simply, looks expensive.

A Market That’s Priced for Perfection

On a historical basis, the Shiller P/E ratio (CAPE) now sits around 39, more than double its long-term average near 17. The only other times valuations reached these levels were during the dot-com boom of the late 1990s and, briefly, before the 1929 crash. In both cases, the market didn’t stay there for long.

Similarly, the Price-to-Sales (P/S) ratio for the technology sector has climbed to roughly 9.76, also near record highs. Tech stocks now account for over a quarter of the S&P 500’s total value—an incredible concentration considering that just seven companies (the “Magnificent Seven”) make up about one-third of the entire index.

When valuations get this stretched, markets don’t need bad news to stumble—they just need the absence of good news.

How We Got Here

It’s not hard to see what’s driven this latest rally.

• AI investment has exploded, prompting massive corporate spending and a wave of optimism about productivity.
• Corporate profit margins remain near all-time highs, supported by pricing power, cost efficiency, and new technologies.
• And interest-rate cuts appear to be on the horizon, which the market has already started to price in.

From April 2023 through October 2025, the global equity index (ACWI) is up more than 17% annually. It’s been an impressive run, and investors who stayed the course have been well rewarded. But the data also tell us that after strong multi-year stretches like this one, the market often cools—or corrects.

Lessons from History

History doesn’t repeat, but it often rhymes.
Each of the last major valuation peaks shared similar features: optimism, innovation, and a sense that “this time is different.” In 1999, it was the internet. In 2007, it was real estate and leverage. In 2021–2025, the story has been AI.

Looking back, when markets reached comparable valuation extremes, they eventually experienced drawdowns of 25–50% within the following 24 months. Those who had rebalanced ahead of time were able to protect gains, while those who didn’t were left reacting emotionally when volatility returned.

None of this means a crash is imminent. In fact, momentum can—and often does—carry markets higher for a while. But the statistical odds suggest that the higher the valuations climb, the harder it becomes for future returns to keep pace.

What This Means for Investors

For younger investors, this isn’t a call to head for the exits. Quite the opposite. If you’re under 40, you likely haven’t yet invested the majority of your lifetime wealth. For you, an extended market pullback can be a gift—an opportunity to invest at more favorable prices through ongoing contributions.

For those closer to or in retirement, however, the calculus is different. After a strong multi-year stretch of gains, trimming exposure or adding protective strategies can make sense. There’s wisdom in the old saying: “Don’t try to time the market—but do respect where it stands.”

Consider this: most investors choose to reduce risk after a downturn has already occurred. But doing so before a potential correction is how long-term discipline pays off. If you’ve been meaning to revisit your portfolio’s risk level, now is the time.

What We’re Watching

At DLAK, we continue to monitor three primary indicators:

1. Valuation metrics – CAPE and sector Price-to-Sales ratios remain near historical highs.
2. Momentum – markets can stay expensive longer than expected, but momentum eventually fades.
3. Macro trends – falling inflation and potential rate cuts could extend the rally, but both are already largely priced in.

If we do see a significant market pullback, it’s worth remembering that these periods tend to reset valuations and create the next great investment opportunities. But they’re only valuable if you have the liquidity, the plan, and the mindset to take advantage of them.

Final Thoughts

Markets have rewarded patience, but now they’re demanding perspective. We’re not forecasting a specific outcome, but when valuations and optimism both reach historic levels, prudence should follow.

As CNBC’s Andrew Ross Sorkin recently put it on 60 Minutes:

“We will have a crash. I just can’t tell you when, and I can’t tell you how deep. But I can assure you — unfortunately, I wish I wasn’t saying this — we will have a crash.”
— Investopedia

The point isn’t fear—it’s preparation. Whether that means modestly rebalancing or simply staying disciplined, this is the moment to be intentional.