Though the ride has been bumpy at times, the third year of Wall Street's bull market rally didn't disappoint. When the closing bell tolled for 2025, the ageless Dow Jones Industrial Average (^DJI 1.56%), benchmark S&P 500 (^GSPC 1.52%), and growth-inspired Nasdaq Composite (^IXIC 1.78%) gained 13%, 16%, and 20%, respectively.
Investors have had several reasons to be optimistic, with the rise of artificial intelligence (AI) leading the charge. Otherworldly AI data center infrastructure spending has professional and everyday investors expecting this game-changing technology to eventually become a multitrillion-dollar global addressable market.
Image source: Getty Images.
The prospect of additional interest rate cuts by the nation's central bank in 2026 is also fueling investor optimism. The Federal Reserve's lowering of the federal funds target rate makes it less costly for businesses to borrow, which can spur hiring, acquisitions, and innovation. Lower interest rates aim to increase U.S. economic growth.
Wall Street has also been mostly satisfied with President Donald Trump's tax policies. While his ever-changing tariffs have caused turbulence at times, the Tax Cuts and Jobs Act, signed into law in December 2017, permanently reduced the peak marginal corporate income tax rate from 35% to 21%, marking its lowest level since 1939. Public companies being able to keep more of their income has led to a sizable increase in annual share buybacks.
But while Wall Street analysts and investors are, collectively, optimists, their recent actions speak louder than their words.
There's no mistaking this $7.8 trillion stock market warning
Although the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all pushed to several record highs over the last year, so has the total invested capital in money market funds.
Money market funds are a type of mutual fund that invests in generally low-volatility, high-quality assets, such as short-term Treasury bills, certificates of deposit (CDs), municipal bonds, and corporate debt. According to data from the Board of Governors of the Federal Reserve, total financial assets held in money market funds at the end of the third quarter of 2025 reached an all-time high of $7.774 trillion.
$7.8 Trillion is now sitting in Money Market Funds, a new all-time high 🚨🚨 pic.twitter.com/kkKfkW5G4j
-- Barchart (@Barchart) January 15, 2026
When the Fed undertook its most aggressive rate-hiking cycle since the early 1980s from March 2022 through July 2023, increasing the federal funds rate by 525 basis points, it incentivized investors to pile into money market funds. Higher interest rates translate into high yields for short-term Treasury bills, CDs, municipal bonds, and corporate debt.
However, the nation's central bank has reduced its fed funds target rate on six occasions since September 2024. Each rate cut lowers the interest-earning potential for investors in money market funds. Despite this reduced potential for interest income, inflows into money market funds have accelerated. In spite of investors' outward optimism, this data appears to indicate that they're genuinely skeptical of stocks.
There are several reasons for investors to be concerned about the stock market, with its valuation at the top of the list. We entered 2026 with the second priciest stock market in history, dating back 155 years, according to the S&P 500's Shiller Price-to-Earnings (P/E) Ratio (also known as the cyclically adjusted P/E Ratio, or CAPE Ratio).
The S&P 500's Shiller P/E has surpassed a multiple of 30 only six times since January 1871. The previous five occurrences resulted in disaster, with the Dow, S&P 500, and/or Nasdaq eventually shedding 20% to 89% of their respective value. History has repeatedly shown that expensive stock valuations aren't tolerated over long periods.
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
History hasn't exactly been kind to next-big-thing innovations, either. Over the last three decades, no game-changing technology or next-big-thing trend has escaped an early stage bubble-bursting event. This means some of the ultra-hot innovations responsible for lifting the broader market, including AI and quantum computing, are at risk of bursting and dragging down the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
Trump's tariffs are also a wildcard that may be encouraging investors to run for the safety of money market funds. Aside from the president being inconsistent with his tariff and trade policy, an analysis of Trump's China tariffs in 2018-2019 from four New York Federal Reserve economists found that they, on average, had a lasting negative impact on employment, labor productivity, sales, and profits for publicly traded companies from 2019 to 2021.
Actions speak louder than words, and investors piling $7.8 trillion into money market funds pretty clearly shows they're worried about the stock market.
Image source: Getty Images.
Historical trends work in both directions
Depending on your investing time frame, historical trends can be your friend or foe.
Based on factors that include the Shiller P/E and the, thus far, flawless track record of next-big-thing technologies enduring early stage bubbles, there's a strong probability of the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite navigating their way through a stock market correction, bear market, or crash in the presumed not-too-distant future.
But taking a step back and examining the big picture results in a remarkably different outlook.
While stock market corrections, bear markets, and those pesky elevator-down moves are unwanted if not feared by investors, they share something in common: a historically quick resolution.
In June 2023, with the S&P 500 bouncing 20% off its 2022 bear market low and establishing itself in a new bull market, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that calculated the length of every S&P 500 bull and bear market since the beginning of the Great Depression (September 1929).
It's official. A new bull market is confirmed.
-- Bespoke (@bespokeinvest) June 8, 2023
The S&P 500 is now up 20% from its 10/12/22 closing low. The prior bear market saw the index fall 25.4% over 282 days.
Read more at https://t.co/H4p1RcpfIn. pic.twitter.com/tnRz1wdonp
On the one hand, only eight out of 27 S&P 500 bear markets reached the one-year mark, with the average 20% or greater downturn hitting its trough in 286 calendar days (approximately 9.5 months). Comparatively, 14 out of 27 S&P 500 bull markets (when extrapolated to the present day) have lasted longer than the lengthiest S&P 500 bear market (630 calendar days), with the typical bull market persisting for 1,011 calendar days (roughly two years and nine months).
An analysis from Crestmont Research yields similar results. The analysts at Crestmont calculated the rolling 20-year total returns of the broad-based S&P 500, including dividends, since the start of the 20th century. Even though the S&P didn't officially exist until 1923, researchers tracked the total return data of its components in other indexes back to 1900.
Crestmont Research found that all 107 rolling 20-year periods examined (1900-1919, 1901-1920, and so on, to 2006-2025) produced a positive annualized return. In other words, there hasn't been a single 20-year period since 1900 where the stock market's benchmark index would have been down, including dividends.
Although the stock market's near-term future may be dicey, the long-term potential of equities is historically undeniable.
