Nobody rings a bell at the top. But right now, the market is doing something close — it’s flashing three distinct warning signals that weren’t present just eight weeks ago. The probability of a significant crash hasn’t been this elevated since the early days of 2020, and investors who ignore it do so at their own risk.
Warning number one: the geopolitical wildcard. The U.S.-Israel attack on Iran and Iran’s subsequent attempt to block the Strait of Hormuz — through which a fifth of the world’s oil travels — has created the greatest disruption to global oil supply in history. That’s not hyperbole. According to Rapidan Energy, the current disruption is nearly three times the magnitude of the 1973 Arab oil embargo. And that embargo, for the history buffs, triggered one of the worst stock market crashes since the Great Depression.
Warning number two: valuations are still in nosebleed territory. The S&P 500’s Shiller CAPE ratio sits near its highest level since early 2000 — right before the dot-com bubble popped. Warren Buffett’s favorite metric, the total market cap to GDP ratio, is at roughly 218%. Buffett himself wrote in Fortune that investors are “playing with fire” when this ratio approaches 200%. We blew past that and kept climbing.
Warning number three: the narrative is cracking. AI stocks — the engine of the last two years of market gains — are facing a credibility test. SaaS stocks are selling off on fears that AI will disrupt their businesses. Meanwhile, mega-cap tech companies are starting to quietly walk back their AI infrastructure spending commitments. When the market’s best story starts to fray, valuations that depend on that story get very fragile, very fast.
Here’s the thing though: none of this guarantees a crash. The economy’s underlying fundamentals remain reasonably solid. Corporate earnings haven’t collapsed. And the S&P 500 hasn’t even dipped that far from its all-time high yet. The bulls will tell you that’s resilience. The bears will tell you that’s complacency. Both have a point.
The smart play right now? Three moves. First, don’t panic — higher probability doesn’t mean certainty. Second, be ruthlessly selective about what you buy, emphasizing strong balance sheets and reasonable valuations. Third — and this is the one most people skip — build your cash position so you’re ready to pounce if the sell-off actually comes. The investors who made generational wealth during COVID didn’t do it by predicting the crash. They did it by having dry powder when everyone else was panicking.