Could the Stock Market Crash in 2026? What Current Conditions and Market History Suggest

With the stock market having delivered gains for three consecutive years, investors are starting to ask uncomfortable questions about what comes next. The combination of elevated valuations, shifting investor sentiment, and potential headwinds from trade policies raises legitimate concerns about whether will stock market crash scenarios are becoming more likely in 2026 and beyond.

Warren Buffett, one of history’s most successful investors, offers timeless wisdom on this question—not through predictions he refuses to make, but through principles he has lived by for decades and actions his company continues to take today.

When Markets Rise Too Fast, History Suggests Caution Is Warranted

The S&P 500’s three-year winning streak of double-digit annual returns is statistically unusual. Historically, such extended periods of outperformance have often been followed by disappointing returns in the fourth year, suggesting that market momentum eventually exhausts itself. Looking further back, the pattern becomes even clearer: extended bull markets can mask deteriorating fundamentals until reality forces a reckoning.

The Great Recession of 2007-2008 offers a sobering reminder. While most investors remained euphoric in 2006 and early 2007, the housing market’s underlying weakness was building. By late 2008, when the crisis hit full force and the S&P 500 had plunged 40% from its peak, Warren Buffett saw opportunity where others saw disaster. His 2008 commentary in The New York Times contained a principle that applies directly to today’s environment:

“Be fearful when others are greedy, and be greedy when others are fearful.”

The challenge for investors now is recognizing which phase we’re in. Current survey data from the American Association of Individual Investors reveals that bullish sentiment stands at 42.5%—considerably above the five-year average of 35.5%. On the surface, this looks encouraging. However, the AAII sentiment gauge acts as a contrarian indicator: when retail investors are most optimistic, subsequent market returns tend to disappoint. The reverse is also true—pessimism typically precedes gains.

This dynamic suggests that current sentiment levels may be signaling diminished returns ahead rather than continued strength.

Rising Valuations Combined With Economic Headwinds Create a Precarious Setup

Under Buffett’s leadership, Berkshire Hathaway has been a net seller of stocks for three consecutive years—meaning the company sold more stock than it purchased. This behavior directly correlates with the dramatic shift in how expensively the market values corporate earnings.

In October 2022, the S&P 500 traded at approximately 15.5 times forward earnings. Today, that multiple has expanded to 22.2 times forward earnings—a substantial premium above both the five-year average of 20 and the ten-year average of 18.7 times, according to FactSet Research. This valuation level is particularly noteworthy because it has only been sustained twice in the past forty years: during the dot-com bubble and during the COVID-19 pandemic. Both periods were followed by market declines.

Torsten Slok, chief economist at Apollo Global Management, has noted that forward P/E multiples around 22 have historically corresponded with annual returns below 3% over the subsequent three-year period. In other words, high valuations don’t necessarily trigger crashes—but they do tend to deliver disappointing returns.

This risk becomes more acute when economic growth is under threat. President Trump’s tariff policies have coincided with a deteriorating jobs market, and research from the Federal Reserve indicates that tariffs historically act as a drag on economic expansion. Higher valuations combined with slower earnings growth is a recipe for what could fairly be described as a challenging period for equity investors.

The Case for Caution in the Current Environment

While Buffett famously stated, “I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now,” he also demonstrated through decades of action exactly what he does when markets appear overheated: he stops buying and starts selling.

Berkshire’s three-year selling campaign represents a clear signal. Buffett has made an implicit argument through behavior rather than words: that attractively priced stocks—his preferred hunting ground—have become scarce. When one of history’s greatest capital allocators decides that opportunities are limited, it warrants investor attention.

The question of whether stock market will crash depends on numerous unpredictable variables, but the question of whether valuations can continue expanding indefinitely has a clearer answer: historically, they have not. Combining that reality with elevated bullish sentiment and emerging economic uncertainties creates conditions that demand respect.

Investors who heed Buffett’s contrarian philosophy would recognize the current environment as one calling for caution rather than aggression. That might not seem exciting, but avoiding catastrophic mistakes has always been the foundation of wealth preservation.