Although it's been a volatile year for Wall Street, it appears as if it'll be a highly profitable one for investors who've stayed the course. As of the closing bell on Dec. 17, the ageless Dow Jones Industrial Average (^DJI 1.56%), benchmark S&P 500 (^GSPC 1.52%), and growth stock-dependent Nasdaq Composite (^IXIC 1.78%) have, respectively, gained 13%, 14%, and 18% year-to-date.
The artificial intelligence revolution, coupled with the Federal Reserve lowering interest rates, has investors excited about the future -- but perhaps a bit too excited.
As things stand now, we're set to enter 2026 with the second priciest stock market in history. Should things go south on Wall Street in the new year, as history has foreshadowed, one exchange-traded fund (ETF) stands out as a truly genius buy for 2026.
Image source: Getty Images.
The stock market is in rarified territory
To preface this discussion, "value" is a somewhat subjective term. Every investor has their unique blueprint for evaluating securities, which means what you find to be pricey might be viewed as a bargain by another individual. This subjectivity is one of the primary reasons the stock market is so unpredictable over short periods.
Most investors turn to the time-tested price-to-earnings (P/E) ratio when evaluating businesses for investment purposes. The P/E ratio is calculated by dividing a company's share price by its trailing 12-month earnings per share (EPS). While this valuation tool works wonders for profitable, mature businesses, it's not particularly useful for growth stocks and loses virtually all of its utility during recessions when EPS can turn negative.
The valuation metric that demonstrates just how expensive the stock market is right now is the S&P 500's Shiller P/E Ratio, which you'll also find referred to as the cyclically adjusted P/E Ratio, or CAPE Ratio.
Instead of looking at 12 months of EPS data, the Shiller P/E is based on average inflation-adjusted EPS over the previous 10 years. This helps minimize the ebbs and flows of economic cycles, maintaining the usefulness of this valuation measure even during recessions.
S&P 500 Shiller CAPE Ratio data by YCharts.
When back-tested to January 1871, the S&P 500's Shiller P/E has averaged a multiple of 17.32. As of the closing bell on Dec. 17, it chimed in at a multiple of 39.59, which is 129% above its 155-year average. It's also within a stone's throw of the 41.20 peak achieved during the current bull market.
The only time the stock market has been pricier than it is now is in the months leading up to the bursting of the dot-com bubble. In December 1999, the Shiller P/E hit an all-time high of 44.19.
Over 155 years, there have only been six occurrences of the S&P 500's Shiller P/E topping 30 and maintaining this premium for at least two months. Excluding the present instance, the five prior occurrences were all, eventually, followed by declines in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite of at least 20%.
In other words, the Shiller P/E has been a historically flawless foreshadower of significant downside in equities. Although it's in no way a timing tool, it serves as a stark reminder that premium valuations aren't sustainable over a long period.
With several catalysts potentially poised to pull the rug out from beneath Wall Street in 2026, investors are going to have to be mindful of where they put their money to work.
Image source: Getty Images.
This high-yield ETF checks all the right boxes for investors
If a stock market correction, bear market, or even a short-lived elevator-down move were to take place in the new year, the genius, high-yield ETF that can help investors navigate this turbulence is the Schwab U.S. Dividend Equity ETF (SCHD 0.58%).
Though there is a laundry list of effective investment strategies on Wall Street, few have been as consistently successful as buying and holding high-quality dividend stocks.
In "The Power of Dividends: Past, Present, and Future," the analysts at Hartford Funds, in collaboration with Ned Davis Research, compared the performance of dividend-paying companies to non-payers over the course of 51 years (1973-2024). Researchers found that dividend stocks more than doubled the average annual return of non-payers (9.2% vs. 4.31%). What's more, the income stocks were notably less volatile than the benchmark S&P 500 and the non-payers.
The Schwab U.S. Dividend Equity ETF aims to mirror the total returns, including dividends, of the Dow Jones U.S. Dividend 100 Index, before fees and expenses. Schwab's ETF is packed with 103 predominantly time-tested, brand-name companies.
NYSEMKT: SCHD
Key Data Points
For example, drugmakers Merck, Amgen, Bristol Myers Squibb, and AbbVie are four of the top five holdings. Since we can't control when we become ill or what ailment(s) we develop, demand for novel therapies remains steady in any economic climate. Other top 10 holdings include consumer goods giants Coca-Cola and PepsiCo, as well as communication services titan Verizon Communications. These are all businesses that generate abundant and predictable operating cash flow.
Additionally, the Schwab U.S. Dividend Equity ETF is crushing the broad-based S&P 500 in terms of yield. Whereas Wall Street's broad-based stock index is yielding a measly 1.12%, as of Dec. 12, courtesy of data from The Wall Street Journal, the Schwab U.S. Dividend Equity ETF had a yield of approximately 3.8%!
Amazingly, the luxury of instant diversification comes at a very low cost. Since turnover in the Dow Jones U.S. Dividend 100 Index is minimal, the net expenses ratio -- i.e., the management fees and expenses investors pay -- is a mere 0.06%. This means only $0.60 of every $1,000 invested annually is going toward various fees and expenses. For comparison, the average passive ETF has a net expense ratio of 0.16%.
Best of all, the Schwab U.S. Dividend Equity ETF offers investors value amid a historically pricey stock market. As of Dec. 12, WSJ listed the S&P 500 as having a trailing 12-month P/E ratio of 25.63. But as of the end of November, the average trailing 12-month P/E ratio for the 103 companies that comprise the Schwab U.S. Dividend Equity ETF was just 17.18.
Even though growth rates for these mature businesses will be relatively tame, this genius ETF provides a high floor and steady appreciation potential for income- and value-seeking investors.
