Bram Berkowitz, The Motley Fool

Sun, Jun 15, 2025, 2:40 AM5 min read

• The S&P 500 Index has been extremely volatile this year.

• Several data points suggest the market is overvalued.

• One recent event with a perfect track record of predicting long-term future performance suggests the market will surge over the next half decade.

• These 10 stocks could mint the next wave of millionaires ›

If you like volatility, then you've probably enjoyed the action in the stock market this year. The broader benchmark S&P 500 index (SNPINDEX: ^GSPC) started the year by reaching new highs in February. Then, following President Donald Trump's sweeping tariff announcements in early April, the market absolutely plummeted, falling 19% and almost entering bear market territory from highs in February. Trump's 90-day pause on tariffs to work on trade agreements with other countries sparked a stock market recovery, recouping most of the losses from early April. As of June 13, after everything that happened, the S&P 500 was up about 2.1% on the year.

While market uncertainty and the risks ahead remain elevated, one recent flashing economic signal with a perfect track record suggests the market will soar over the next five years.

Past results don't always mean the same thing will happen in the future. Investors should also understand that what makes investing and analyzing the market so difficult is that there can be conflicting data points indicating that market conditions are both rosy and on the brink of a huge downturn.

Before we get to the flashing signal suggesting the market is about to soar, it's important to point out that the market is, on many accounts, overvalued. This shouldn't come as a surprise after superb returns in both 2023 and 2024, not to mention concerns about a recession or stagflation that could impact corporate earnings.

One metric that makes the S&P 500 look overvalued is the CAPE ratio (also known as the Shiller P/E ratio), which looks at the price of the S&P 500 divided by the index's 10-year inflation-adjusted earnings for the purpose of smoothing out volatility.

As you can see above, dating back to 2000, the average CAPE ratio is about 27, while the CAPE ratio currently sits above 36. Another data point that would suggest the market is overvalued is the famous Buffett indicator, a metric heavily relied upon by the great Warren Buffett to see where valuations stand at any given moment. The Buffett indicator looks at the market cap of the Wilshire 5,000, which broadly represents the U.S. stock market, divided by gross domestic product.