What a difference a few weeks can make on Wall Street!
As of the closing bell on March 26, the mature-stock-driven Dow Jones Industrial Average (^DJI +1.79%) and innovation-fueled Nasdaq Composite (^IXIC +1.52%) were both in correction territory, with the broad-based S&P 500 (^GSPC +1.20%) one bad day away from joining them. But as of the closing bell on April 15, the Nasdaq Composite and S&P 500 have reached new all-time highs, with the Dow about 3% away from its record close.
Image source: Getty Images.
Speculation that the Iran war will have a quick end and that artificial intelligence (AI) will continue to drive outsize earnings growth has sent the Nasdaq Composite higher for 11 consecutive trading sessions — its longest winning streak since November 2021.
While optimists undoubtedly rule the roost over extended periods, this breakneck rally over the last three weeks isn’t a lock to be sustained. Though two of the three major stock indexes have notched all-time highs, the stock market’s two biggest risks just keep getting worse.
The U.S. inflation outlook continues to worsen
Based on investors’ reactions over the last three weeks, many expect the Iran war to be over relatively soon. But even if this conflict ends quickly, the inflationary effects of President Donald Trump’s actions are likely to ripple through the U.S. economy for several quarters to come.
Shortly after military operations commenced on Feb. 28, Iran closed the Strait of Hormuz to virtually all oil exports. This closure, which has extended to seven weeks as of this writing on April 15, represents the largest energy supply disruption in modern history. Crude oil prices have soared in its wake, leading to pain at the pump for consumers and considerably higher transportation and production costs for American businesses.
Price changes over last year (March CPI report)
Fuel Oil: +44.2%
Gasoline: +18.9%
Gas Utilities: +6.4%
Electricity: +4.6%
Transportation: +4.1%
Food away from home: +3.8%
Medical Care: +3.7%
Overall CPI: +3.3%
Shelter: +3%
Food at home: +1.9%
New Cars: +0.5%
Used Cars: -3.2%— Charlie Bilello (@charliebilello) April 10, 2026
Trailing 12-month (TTM) inflation for March jumped 90 basis points to 3.3% from a reported 2.4% in February. According to the Federal Reserve Bank of Cleveland’s Inflation Nowcasting tool, TTM inflation for April is estimated to come in at 3.58%. This projection has been continually climbing for weeks.
When the year began, Wall Street and investors had been counting on the Federal Reserve to cut interest rates several times. Lower borrowing costs can spur hiring, acquisitions, and innovation. More importantly, lower lending rates are needed to support aggressive AI data center build-outs.
However, a TTM inflation rate of nearly 3.6% isn’t providing the Federal Open Market Committee (FOMC) — the 12-person body responsible for setting the nation’s monetary policy — any incentive to lower interest rates. If anything, the odds have shifted away from the FOMC cutting rates in 2026 to raising them before the year ends.
Even though investors have completely wiped out the Nasdaq Composite’s correction and the S&P 500’s pullback in less than three weeks, energy price shocks and inflationary pressure won’t disappear overnight.
Image source: Getty Images.
A historically expensive stock market keeps getting pricier
The other risk factor for Wall Street that simply can’t be swept under the rug is equity valuations.
To preface the following discussion, value is subjective. What one investor considers pricey might be a bargain to another. Without a one-size-fits-all blueprint for evaluating public companies, value will always be subject to some degree of individual interpretation.
However, the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio, also referred to as the Cyclically Adjusted P/E Ratio (CAPE Ratio), is capable of cutting through this subjectivity.
The Shiller P/E is based on average inflation-adjusted earnings over the last 10 years. Whereas the traditional P/E ratio, which accounts for TTM earnings, can be disrupted by recessions and shock events, the CAPE Ratio remains useful in any economic climate.
When back-tested over the last 155 years, the S&P 500’s Shiller P/E has averaged 17.35. As of April 15, the Shiller P/E stood at 40.57, marking the second-priciest valuation during a continuous bull market since January 1871. The months leading up to the bursting of the dot-com bubble are the only time the stock market has been more expensive than it is now.
S&P 500 Shiller PE Ratio hits 2nd highest level in history 🚨 The highest was the Dot Com Bubble 🤯 pic.twitter.com/Lx634H7xKa
— Barchart (@Barchart) December 28, 2025
In fact, there have only been three instances, including the present, where the CAPE Ratio has topped 40. The previous two occurrences — the lead-up to the dot-com bubble and the week before the 2022 bear market took shape — saw the benchmark S&P 500 lose 49% and 25% of its respective value.
In other words, history shows that premium valuations on Wall Street aren’t sustainable over long periods. When the S&P 500’s Shiller P/E becomes extended to the levels that we’re now witnessing, declines of at least 20%, if not substantially more, have become the expectation.
While historical precedent makes clear that the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite rise over multidecade periods, the near-term outlook for the stock market continues to worsen, despite the strength that the major indexes have exhibited over the last couple of weeks.
