One of the most pronounced shifts in the business world over the past two decades has been the ascent of technology companies among the world’s most valuable enterprises. Just 20 years ago, industrial and energy heavyweights General Electric and ExxonMobile topped the charts when measured by market cap, valued at $319 billion and $283 billion, respectively. Now, two decades later, technology leaders rule the roost.

Apple tops the list (as of this writing), and Microsoft is currently No. 2, with market caps of $3.4 trillion and $3 trillion, respectively. Nvidia‘s rise over the past 18 months has been nothing short of astonishing, adding nearly $2.2 trillion since early last year, climbing to $2.5 trillion and coming in at No. 3. Alphabet, Amazon, and Meta Platforms boast market caps of $1.9 trillion, $1.8 trillion, and $1.3 trillion, respectively. The common thread among these top players is that they were early adopters of artificial intelligence (AI) — even before the technology went viral in early 2023.

With a market cap of just $391 billion, it might seem like wishful thinking to suggest that Oracle (NYSE: ORCL) might be in the running for membership in the $1 trillion club. However, the business’s trajectory and management’s outlook suggest demand for generative AI could drive accelerating growth in the coming years.

A trusted AI partner

Oracle’s suite of offerings, which includes database, cloud, and enterprise software, is used by 98% of Global Fortune 500 companies. This gives the company an advantage as its customers seek to join the AI revolution.

This dynamic has helped fuel robust overall growth. During Oracle’s fiscal 2024 fourth quarter (ended May 31), revenue grew 3% year over year to $14.3 billion, while its operating income climbed 15% — but that only tells part of the story.

During the fourth quarter call with analysts, CEO Safra Catz noted that customers had signed 30 AI contracts worth $12 billion during the quarter, bringing the total to $17 million for the year, among them “the largest sales contracts” in the company’s history. Furthermore, CTO Larry Ellison said he believes the recent cloud deal to build Oracle Cloud Infrastructure (OCI) inside Microsoft Azure Cloud will “turbocharge [Oracle’s] cloud database growth.”

These new deals drove Oracle’s remaining performance obligation (RPO) — or contracts not yet included in revenue — up 44% year over year to $98 billion. It’s always a positive indicator when RPO grows faster than revenue, as it illustrates robust sales pipeline growth. In this case, it also shows that there is a strong demand for cloud and AI solutions among Oracle’s customers.

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As such, the company’s 2025 guidance calls for revenue to accelerate in each successive quarter, resulting in double-digit revenue growth for the fiscal year. In the first quarter, Oracle expects its revenue growth rate to more than double sequentially to 6% at the midpoint of its guidance, driven by cloud revenue growth of 22%. This will fuel adjusted earnings per share (EPS) growth of 13%. Given management’s commentary, each successive quarter will be even better.

We’ll have more current information when Oracle reports its fiscal 2025 first-quarter results after the market close on Monday, Sept. 9.

The path to $1 trillion

Oracle has a long history of cloud and AI expertise. This is something new that will appeal to existing customers as they look to integrate generative AI into their operations. That said, the ongoing adoption of AI will take place over years, if not decades.

According to Wall Street, Oracle is expected to generate revenue of $57.9 billion in its fiscal 2025 (which began June 1), giving it a forward price-to-sales (P/S) ratio of less than 7. Assuming its P/S ratio remains constant, Oracle would need to grow its revenue to approximately $148 billion annually to support a $1 trillion market cap.

Analysts are forecasting revenue growth of about 20% for the full fiscal year. If the company maintains that 20% sales growth, Oracle could reach the $1 trillion market cap by 2030. Even if its sales grow at a more moderate 11% pace — Wall Street’s current expectations for fiscal 2026 — Oracle would still surpass the $1 trillion threshold by 2034.

However, forecasts regarding the impact of generative AI continue to climb. The market could be worth between $2.6 trillion and $4.4 trillion annually in the coming years, according to global management consulting firm McKinsey & Company.

If the company can continue to serve its customers looking to make the jump to AI, this will reflect in Oracle’s growth rate, and the company will join the ranks of trillionaires sooner than later.

Should you invest $1,000 in Oracle right now?

Before you buy stock in Oracle, consider this:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 Unstoppable Stock That Could Join Apple, Microsoft, Nvidia, Alphabet, Amazon, and Meta in the $1 Trillion Club by 2030 was originally published by The Motley Fool

Compared to many retirees, you are in an enviable position with $1 million socked away in your IRA at 70. Still, living a secure, comfortable retirement that can last two decades or more takes planning. Making sure your nest egg lasts requires assessing your personal situation, balancing risk, securing reliable income streams and understanding how required minimum distributions affect your finances.

A financial advisor can help analyze your income needs in retirement and build plans to make your savings last.

Basics of Making Savings Last

If your savings are going to provide lifetime financial security you have to pay attention to the basics. The keys to making your $1 million IRA last for the rest of your life are:

1. Spend conservatively from your IRA. A 4% annual withdrawal rate can improve chances your savings won’t run out.

2. Invest appropriately to generate solid returns while controlling risk. Consider an asset allocation of 60% stocks and 40% bonds utilizing low-fee index funds rather than shooting for maximum possible returns. This will help minimize the risk involved with a market downturn.

3. Exploit other income sources first before tapping your IRA. Using Social Security benefits, earnings from part-time work and annuity payments all offer alternatives to spending your savings.

What’s Your Situation?

Your personal financial situation and retirement lifestyle wishes will determine the most appropriate ways to tap your $1 million IRA. To fill in the blanks of your future retirement, ask yourself the following questions:

• How much will you budget for basic living expenses?

• What large purchases, vacations or indulgences do you desire?

• How risk averse are you?

• Do you want to leave an inheritance?

• Do you have health issues requiring significant care costs?

• What are your expected income sources?

• How will taxes affect your income in retirement?

• What is your best estimate for returns on investments in your IRA?

Answers to questions like these help set your withdrawal rate, asset allocation, insurance needs and estate plans. Though $1 million sounds like a lot, it may not fund an extravagant, globe-trotting lifestyle. Create a realistic budget accounting for healthcare, taxes and inflation.

If your IRA must cover over half your costs, a more modest standard of living or delaying retirement may be prudent.

A financial advisor can help you answer these questions and build a retirement strategy.

Managing Risk in Retirement

Retirement at age 70 can last for twenty or more years. Uncertainty is inevitable when you are contemplating such lengthy time frames. Your retirement plan should address the following risks:

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• Investment risk is the hazard of portfolio losses from causes such as market volatility and rising interest rates. Mitigate investment risk by holding a mix of stocks for growth and bonds and cash for stability.

• Longevity risk means outliving your savings. Accept some market risk – with a 20- to 30-year timeframe, stocks should appreciate over time. Within your stock allocation, diversify globally across capitalizations, sectors and regions. Use low-cost, tax-efficient index mutual funds or ETFs. Also consider an immediate annuity, which offers guaranteed lifetime income. Address longevity risk by being willing to adjust your withdrawals downward during market swoons.

Health costs can also be significant in retirement. Understand your Medicare benefits and shop for supplemental Medigap coverage as needed. Don’t neglect to consider possible long-term care insurance needs. Secure insurance to cover risks that may require tapping your IRA unexpectedly. Review your property and casualty and liability. You may be able to drop disability insurance.

Have questions about risk and insurance? Talk to a financial advisor today.

RMD Impact

Required minimum distributions (RMDs) dictate that you withdraw funds from tax-deferred retirement accounts annually starting at age 73.  In your situation, RMDs will likely total just over $40,000 per year.

Failure to take RMDs triggers 50% penalty taxes, so don’t neglect this. And RMDs are taxed as ordinary income, so plan for the tax hit when you do take them. For example, a 4% RMD withdrawal on a $1 million IRA could create a roughly $8,800 federal tax liability for someone in the 22% marginal tax bracket.

Using Trusts for Retirement Planning

Trusts are widely used in estate planning to help manage inheritance taxes and control distributions to heirs. They can also be useful for protecting retirement savings.

Retirement trusts are specifically designed to receive retirement account assets while maintaining tax-deferred status, protecting against legal liability and stretching withdrawals over time. Charitable remainder trusts employ retirement savings for income generation now while distributing principal to charity later.

Trusts require expertise to establish properly. But these instruments can structure retirement assets to last through your golden years while also planning your legacy. If you’re interested in setting up a trust, consider talking to a financial advisor.

Bottom Line

With prudent management, a $1-million IRA at age 70 can readily fund two decades or more of retirement. Using realistic earnings projections and conscious spending behaviors increases chances of success. Assess your personal situation, temper withdrawal expectations, control portfolio risk and utilize insured income streams before tapping your IRA. Account for taxes and RMDs in withdrawal planning. Be ready to adjust spending downward when markets decline. Trusts may help ease tax burdens for heirs while controlling distributions. With reasonable assumptions and balanced risk management, your IRA can provide lasting retirement security.

Tips

• Speaking with a financial advisor now can help you create workable expense and income plans and structure retirement withdrawals to make your savings last. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Check out SmartAsset’s Asset Allocation Calculator to get an idea of how different portfolios perform over time.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Photo credit: ©iStock.com/shapecharge

The post I’m 70 With $1 Million in an IRA. How Do I Make Sure This Money Lasts the Rest of My Life? appeared first on SmartReads by SmartAsset.

• The Biden administration appears to be exploring the possibility of a sovereign wealth fund.

• Last week, Donald Trump proposed a similar idea.

• The fund could support technology, energy, and supply chain initiatives or even ease national debt.

Bipartisanship in the United States is unusual, especially during election time.

So it is noteworthy that Democratic and Republican leaders both appear to want to establish a sovereign wealth fund to help the United States pay for stuff.

Top aides to President Joe Biden, including National Security Advisor Jake Sullivan and his deputy, Daleep Singh, have been quietly developing plans for a sovereign wealth fund over the past several months, Bloomberg reported.

The details, including the structure, funding, and investment strategy, remain unclear, but planning documents are making the rounds through the White House and Biden hopes to make it happen before he leaves office.

News of Biden’s effort came not long after former president Donald Trump called for a similar state-owned investment fund to finance “great national endeavors” during a campaign stop at the Economic Club of New York last week.

Sovereign wealth funds are an old idea that many other countries — particularly ones that generate vast wealth from their natural resources, like Saudi Arabia or Norway — have long used to pay for big things. Countries park their cash reserves in the state-owned fund so it can grow.

Norway’s $1.6 trillion Government Pension Fund Global, the largest sovereign wealth fund in the world, for instance, reported in January that it made $213 billion in profit last year driven by returns on investments in tech stocks, Reuters reported. The Norges Bank Investment Management, the branch of Norway’s central bank that oversees the fund, said the fund is supported by investment returns on equities, fixed income, real estate, renewable energy infrastructure, and revenue from oil and gas production.

Saudi Arabia’s Public Investment Fund, which manages about $925 billion in assets, reported a $36.8 billion profit for 2023, according to Reuters. The PIF says it is funded through four avenues — capital injections from the government, government assets transferred to PIF, loans and debt instruments, and retained earnings from investments. That money is being used to invest in everything from Uber and Blackstone to Heathrow and LIV Golf. It’s also using it to finance Vision 2030, a huge initiative to transform the country’s economy and reduce its reliance on oil.

It is unclear how an American fund would be, well, funded, or how it would operate. But people familiar with the Biden administration’s plans told Bloomberg that if the United States launched a fund, it could invest in national security interests like technology, energy, and supply chain initiatives.

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This isn’t the first time Washington has toyed with the idea of a sovereign wealth fund. Last March, a group of bipartisan lawmakers led by Sen. Angus King and Sen. Bill Cassidy began discussing a sovereign wealth fund to pay for Social Security. At the time, Sen. Mitt Romney, who attended the talks, said the fund would allow the United States “to be able to borrow at low interest rates and invest in the growth of our economy, and perhaps economies of other nations as well.”

The number of potential uses for the fund, if — again — it can ever be funded, is nearly unlimited, which excites lawmakers.

The White House’s interest in a sovereign wealth fund stems partly from its desire to compete with China, which has multiple state-owned funds itself. White House aides suggested an American fund could bolster national interests through things like “bridge financing” for companies competing with China, according to Bloomberg.

Others have suggested the fund could support technologies with high entry barriers, like geothermal and nuclear fusion projects or quantum cryptography. Or it could create synthetic reserves of critical minerals by purchasing futures contracts.

Or, hey, maybe it could even be used to pay down the national debt.

“It would great to see America join this party and instead of having debt, have savings,” billionaire John Paulson said last week in an interview with Bloomberg Television. “It would be, over time, larger than any of the existing funds.”

It sounds nice, but it all hinges on government cash to fund it and sound investments to grow it.

Former Treasury Secretary Larry Summers said in an interview with Bloomberg Television last week that it was “hard to believe that setting aside lots of funds for unspecified investments made in unspecified ways, where you don’t even know what it’s going to be called, is a particularly responsible, kind of proposal.”

Read the original article on Business Insider

(Bloomberg) — Asian equities slumped at the start of the new week, weighed down by losses in technology stocks on concerns over US economic growth.

Most Read from Bloomberg

The MSCI Asia Pacific Index fell as much as 1.8%, to the lowest level in three weeks, with chipmakers Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. among the biggest drags. Japan’s Nikkei 225 Stock Average slid more than 3% before trimming its loss as the yen pared last week’s sharp gain. Taiwan’s key stock gauge fell 2%, while Hong Kong benchmarks were poised for a fifth-straight day of losses.

Weak US non-farm payrolls data on Friday stirred worry that the Federal Reserve is moving too slowly to support the world’s largest economy. While investors try to gauge the size of the Fed’s rate cut next week, the Bank of Japan’s recent move to tighten policy has put upward pressure on the nation’s currency, fanning concerns over carry trades.

There is scope for “some more short-term downside for risk assets as positions are likely to unwind,” said Matthew Haupt, a portfolio manager at Wilson Asset Management International. “Expect most weakness in Japan at this stage with all markets to suffer as well,” he said.

Chinese shares declined as weak producer and consumer price data Monday pointed to continued deflationary pressures. The country’s stocks have seen a string of downgrades recently as weak economic data raise doubts over its 5% GDP growth target for 2024.

Sectors to Watch

• Chinese medical equipment stocks advance after authorities said they’ll allow more overseas investment in the sector to revive the economy’s growth.

• Asian luxury-goods stocks drop as their European counterparts struggle due to a worsening of China’s downturn.

• Shares of Chinese real estate developers fall after China Vanke reported that its sales slump worsened in August.

Markets at a Glance

• MSCI Asia Pacific Index fell 1.6%

• Japan’s Topix Index fell 1.7%; Japan’s Nikkei Index fell 1.8%

• China’s CSI 300 Index fell 1.1%; Hong Kong’s Hang Seng Index fell 1.9%; Hong Kong’s Hang Seng China Enterprises Index fell 2.2%

• Taiwan’s Taiex Index fell 2%

• South Korea’s Kospi Index fell 0.7%; South Korea’s Kospi 200 Index fell 1.1%

• Australia’s S&P/ASX 200 Index fell 0.6%; New Zealand’s S&P/NZX 50 Gross Index fell 0.4%

• India’s NSE Nifty 50 Index fell 0.1%

• Singapore’s Straits Times Index rose 0.9%; Malaysia’s KLCI Index rose 0.3%; Philippines’s PSEi Index rose 0.7%; Indonesia’s JCI Index fell 0.5%; Thailand’s SET Index fell 0.4%; Vietnam’s VN Index fell 0.5%

• 10-year Treasury yield rose 3.2 basis points

• Bloomberg Dollar Index rose 0.1%

• West Texas Intermediate crude rose 1.3% to $69 a barrel

• Euro was little changed

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Here Are the Most Notable Movers

• Samsung Electronics shares slide as much as 3.3% after firms including KB Securities and CLSA downgraded their price targets amid softer demand for new tech products.

• Akeso stock surges as much as 14% in Hong Kong, the most since May 31, after the company presented the latest data of its lung cancer drug developed in partnership with Summit Therapeutics.

• Nio’s Hong Kong-listed shares soar as much as 17% Monday in their first trading session following the Chinese EV maker’s upbeat second-quarter results. The company is expected to achieve positive free cash flow in the fourth quarter this year, says Citigroup, citing a call with management.

• China Renaissance shares fall 72% in Hong Kong as trading resumes following more than a year of suspension.

• Shares of Guzman y Gomez jump as much as 7.8%, bucking the broader market weakness, after S&P Dow Jones Indices said the stock will be added to the index in its quarterly review.

Related Market News

• Taking Stock: Weakness in Chinese equities is eroding the confidence of some of Wall Street’s staunchest supporters, with hopes for a turnaround fading in the world’s No. 2 economy.

• Global Wrap: Asia’s benchmark stock index slid to a three-week low as worse-than-expected economic data from the US to Japan added to concerns over a broader slowdown.

OPTIONS

• ONGC, ICICI Lombard, Reliance Industries: India Options Wrap

• Kakaopay, KB Financial, LG H&H: South Korea Options Wrap

• Hyundai Steel, Amorepacific, Hyundai Mobis: Korea Option Pin Risk

This story was produced with the assistance of Bloomberg Automation.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.

Smart investing means staying patient. Indeed, numerous studies agree: The longer someone stays invested in the stock market, the greater their returns.

With that in mind, let’s take a closer look at two fantastic buy-and-hold candidates and explore why long-term investors should seriously consider them.

Amazon

The first no-brainer stock I want to highlight is Amazon (NASDAQ: AMZN). There are dozens of reasons to own this iconic company, but let’s focus a bit on a few key financial metrics that explain why Amazon is a great stock to own for the long term.

First, Amazon is enormous. Its annual revenue is over $600 billion, trailing only Walmart in terms of revenue generated by an American company.

Second, despite its massive size, Amazon is growing impressively. Its revenue is growing at around 10% year over year, meaning that, at its current size, Amazon is adding about $60 billion per year in new sales.

Third, Amazon is on the cutting edge of some of the world’s most exciting new technologies. The company’s cloud unit, Amazon Web Services (AWS), is generating much of that new annual revenue, as it is growing at a faster clip than the rest of the company — roughly 19% year over year. In addition, Amazon is a pioneer in the robotics industry — with over 750,000 robots working day and night in its fulfillment centers. Finally, the company has many artificial intelligence (AI) initiatives, including using generative AI to streamline its e-commerce business and its ubiquitous voice-powered echo devices.

In summary, Amazon’s large and growing sales figures show that the company continues to find new ways to serve its existing customers and attract new ones. Over the next decade, Amazon remains a no-brainer stock to own thanks to its combination of proven businesses and innovative new ventures.

The next no-brainer stock to own is Meta Platforms (NASDAQ: META). The reason Meta is such an obvious pick is that the company delivers on the most important factor for any stock: It drives shareholder value.

What I mean is that Meta generates a ton of free cash flow — which is the lifeblood of any great stock.

Think of a garden hose. When the spigot is fully open, water comes flying out at a rapid pace. The more the valve is closed, the less water makes it out the other end of the hose.

In the case of a company, the valve represents operating expenses and capital spending, and the water represents free cash flow — it’s what’s left over after employee salaries, taxes, capital expenditures, and many other costs have been subtracted from revenue.

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What’s so great about Meta is that the company generates a ton of free cash flow. Moreover, its total keeps on growing larger.

Over the last 10 years, Meta has increased its free cash flow from about $3 billion to almost $50 billion. That’s astounding. Bear in mind that many large companies you’ve heard of don’t generate $50 billion in sales, let alone free cash flow.

Simply put, Meta’s free cash flow makes it a stock market juggernaut. With so much free cash flow at its disposal, the company can return value to its shareholders in any number of ways, including paying dividends, repurchasing shares, or making acquisitions.

In short, it gives Meta’s management many ways to increase its share price. And that’s something that should make investors happy for many years to come.

Should you invest $1,000 in Amazon right now?

Before you buy stock in Amazon, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $630,099!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Walmart. The Motley Fool has a disclosure policy.

2 No-Brainer Stocks to Buy and Hold for the Next Decade was originally published by The Motley Fool

Over the last century, stocks have been on a pedestal of their own. Although other asset classes, including Treasury bonds, gold, oil, and housing, have produced positive nominal returns, nothing else has come close to generating the annualized total return that stocks have delivered.

Despite this outperformance, stocks don’t move higher in a straight line. From point A to point B, the journey resembles a winding road filled with various potholes and speed bumps.

Even though the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-focused Nasdaq Composite (NASDAQINDEX: ^IXIC) are all firmly in a bull market and just a stone’s throw from respective all-time highs, one valuation tool suggests the party is set to come to an abrupt end.

Stocks are historically pricey, and that spells trouble for Wall Street

For more than a year, I’ve been examining no shortage of market events, data points, and valuation metrics that have, throughout history, strongly correlated with moves higher or lower in the broader market. Examples include the first meaningful decline in U.S. M2 money supply since the Great Depression, the longest yield-curve inversion on record, and the broader market’s performance following the start of a rate-easing cycle.

However, the one tool that spells big-time trouble for Wall Street is the S&P 500’s Shiller price-to-earnings (P/E) ratio. You’ll sometimes see the Shiller P/E referred to as the cyclically adjusted price-to-earnings ratio, or CAPE ratio.

There’s probably no valuation metric that investors are more familiar with than the traditional P/E ratio, which divides a company’s share price into its earnings per share (EPS) over the trailing-12-month period. Meanwhile, the Shiller P/E takes into account average inflation-adjusted EPS over the last decade. Factoring in 10 years’ worth of EPS history ensures that short-term shocks, such as COVID-19 lockdowns, don’t adversely impact valuation models.

When the closing bell tolled on Sept. 5, the S&P 500’s Shiller P/E was at 35.38, which works out to more than double the 17.16 average since January 1871. As you’ll note from the chart above, the Shiller P/E has spent much of the last 30 years above 20, which is likely a function of the internet democratizing access to information and interest rates hovering below historic norms.

The scary thing for Wall Street and investors is that in 153 years, stocks have, collectively, been pricier on only two separate occasions from the present. During the dot-com boom, the Shiller P/E peaked at its all-time high of 44.19. Meanwhile, during the first week of January 2022, the Shiller P/E briefly topped 40.

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In the years following the dot-com peak, the broad-based S&P 500 went on to lose 49% of its value, while the innovation-driven Nasdaq Composite shed 78% of its value on a peak-to-trough basis. The other instance of the Shiller P/E reaching 40 in January 2022 was followed by a bear market for the Dow Jones, S&P 500, and Nasdaq Composite.

Since 1871, there have been six occasions when the S&P 500’s Shiller P/E has topped and sustained 30 during a bull market rally, including the current instance. All five prior occurrences resulted in the Dow, S&P 500, and/or Nasdaq Composite shedding between 20% and 89% of their value.

Although the Shiller P/E isn’t a timing tool — valuations can remain extended for weeks, months, or even years — it’s foreshadowed a big drop in equities, without fail, when back-tested more than a century. With stocks at their third-highest valuation in history, there’s a strong likelihood of a sizable pullback in the months/years to come.

Perspective is one of the most powerful tools investors possess

While the forecast of a big-time decline in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite probably won’t sit well with most investors, the silver lining is that time is very much on the investor’s side, and perspective changes everything.

As an example, a number of predictive indicators are pointing to economic weakness in the not-too-distant future. A lengthy inversion of the yield curve between 10-year Treasury bonds and three-month Treasury bills has signaled one of the highest probabilities for a U.S. recession that we’ve seen since the early 1980s.

As much as working Americans and investors might dislike recessions, they’re a normal and inevitable part of the economic cycle. Most importantly, they have a history of resolving quickly. Of the 12 U.S. recessions since the end of World War II, nine were completed in under a year, while the remaining three failed to surpass 18 months in length.

On the other side of the coin, two economic expansions have surpassed the decade mark since September 1945, with most periods of growth enduring for multiple years. The economic cycle isn’t linear and undeniably favors those with the foresight to wager on long-term expansion.

What’s noteworthy is that we see this same non-linearity in the stock market.

In June 2023, shortly after the S&P 500 was confirmed to be in a new bull market following its 20% rebound from its 2022 bear market lows, the researchers at Bespoke Investment Group published the data set you see above on X (the social media platform formerly known as Twitter). This data set detailed the length of every bull and bear market in the S&P 500 since the Great Depression began in September 1929.

The 27 S&P 500 bear markets over 94 years have lasted an average of 286 calendar days, which works out to about 9.5 months. On the other hand, the 27 bull markets since the Great Depression have endured an average of 1,011 calendar days, approximately 3.5 times as long. You might also notice that nearly half (13 out of 27) of the S&P 500 bull markets were longer than the lengthiest bear market.

Even without being able to pinpoint when stock market corrections will begin, how long they’ll last, or how steep the peak-to-trough decline will be, investors’ ability to take a step back, widen their lens, and examine the big picture puts time and history in their corner. Regardless of the stock market decline that may await, based on what the Shiller P/E ratio suggests, long-term-minded investors are well positioned for success.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 702% — a market-crushing outperformance compared to 161% for the S&P 500.*

They just revealed what they believe are the 10 best stocks for investors to buy right now…

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Have Been This Pricey Only 3 Times in 153 Years — and You’re Not Going to Like What’s Happened Following the Prior 2 Instances was originally published by The Motley Fool