Key Points
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Several catalysts, including the rise of artificial intelligence, have sent the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite to new heights.
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A very specific set of circumstances for the S&P 500, which hasn’t been observed in over a quarter-century, foreshadows significant downside potential in the stock market’s benchmark index.
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Time and perspective have the ability to change investors’ outlooks.
- 10 stocks we like better than S&P 500 Index ›
For much of the last seven years, the bulls have been in firm control on Wall Street. The iconic S&P 500 (SNPINDEX: ^GSPC) has gained at least 16% in all but one year since 2019. Meanwhile, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI) just eclipsed 50,000 for the first time in its nearly 130-year history, and the technology-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) has consistently delivered outsize returns.
There has been no shortage of catalysts fueling this upside, including the evolution of artificial intelligence (AI), the advent of quantum computing, the prospect of additional interest rate cuts, and record share buyback activity from S&P 500 companies.
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Image source: Getty Images.
But if history has proven anything, it’s that when things seem too good to be true for the stock market, they often are.
The benchmark S&P 500 just did something that investors haven’t witnessed in more than a quarter century — and there’s no mistaking the message behind this event.
This hasn’t been observed since the dot-com bubble burst
Before going any further, it’s worth pointing out that historical correlations can’t guarantee short-term directional moves in the Dow, S&P 500, or Nasdaq Composite. Nevertheless, some events have statistically correlated very strongly with directional moves in Wall Street’s major stock indexes. It’s these historical correlations that tend to raise eyebrows among investors.
One historically correlated indicator of intrigue concerns S&P 500 drawdowns. Using data from Bloomberg Finance, investing podcast The Compound labeled every instance since 2000 in which 115 (or more) of the 500 companies that comprise the benchmark index endured at least a 7% single-session drawdown over a rolling eight-day trading period.
This is incredible:
At least 115 S&P 500 stocks have dropped -7% or more in a single day over the last 8 trading sessions.
And yet, the S&P 500 is down just -2% from its all-time high.
In the past, when at least 115 stocks saw a decline of -7% or more in an 8-day trading… pic.twitter.com/lY1oSKypkl
— The Kobeissi Letter (@KobeissiLetter) February 13, 2026
As you can imagine, instances of heightened downside volatility frequently occurred during short-lived crash events, such as the COVID-19 crash and the week following the unveiling of President Donald Trump’s tariff and trade policy, as well as toward the tail-end of bear markets. Over 26 years, the average S&P 500 drawdown from its high was 34% when 115 or more components fell at least 7% in a single session across a rolling eight-day window.
However, this very specific drawdown indicator just occurred with the S&P 500 only 2% below its all-time high. The only other time since 2000 when 115 or more S&P 500 stocks fell at least 7% over a rolling eight-trading-day window, and the benchmark index was only a few percent below its record high, was the early stages of the dot-com bubble.
While nothing is guaranteed, this statistical increase in outsize declines from some of Wall Street’s most influential stocks has consistently foreshadowed weakness in equities.
This worrisome signal coincides with this being the second-priciest stock market in history, based on readings from the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio. The previous five instances in which the Shiller P/E exceeded 30 for at least two months, dating back to January 1871, eventually resulted in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite shedding 20% to 89% of their value.
Statistically, Wall Street’s bull market looks to be running on borrowed time.
Image source: Getty Images.
Time and perspective can change everything on Wall Street
Although headwinds appear to be mounting for the Dow, S&P 500, and Nasdaq Composite, the outlook for these indexes can vary greatly depending on investors’ perspectives and investment timelines.
To be blunt, stock market corrections, bear markets, and crash events are normal, healthy, and inevitable. No policy maneuvering from the Federal Reserve or government, nor well-wishing from investors, can stop these often emotion-propelled moves lower in Wall Street’s major stock indexes.
But taking a step back and recognizing the nonlinearity of stock market cycles is foundational to being a successful investor.
Recently, analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that calculated the calendar-day length of every S&P 500 bull and bear market, dating back to the start of the Great Depression in September 1929. What Bespoke’s data highlights is the clear disparity in length between bull and bear markets.
The current bull market — the “AI Bull” — has eclipsed the 1,200-day mark. This is the 10th bull market to last 1,000+ days based on the 20% rally/decline threshold.
Bear markets, on average, are much shorter, at just 286 days, with the longest being 630 days back in… pic.twitter.com/ds7lqWWHFh
— Bespoke (@bespokeinvest) February 10, 2026
On one end of the spectrum, the typical 20% or greater decline in the S&P 500 has resolved in 286 calendar days, or about 9.5 months. What’s more, no bear market has endured longer than 630 calendar days.
In comparison, the average S&P 500 bull market has persisted approximately 3.5 times as long (1,011 calendar days), with 10 of the 27 bull markets spanning 96 years lasting more than 1,200 calendar days.
Statistically, wagering on the stock market’s major indexes to rise over time has been a wise decision. This means any significant decline in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite serves as a surefire buying opportunity for investors willing to stay the course for years, if not decades.
If history repeats with the S&P 500’s drawdown indicator, bargains may abound for investors in the not-too-distant future.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
