In 2026 before stepping down, Powell left Wall Street with one sentence: "The US stock prices are already very expensive."

As there are only a few trading days left in 2025, it can be safely said that once again, the stock market has not disappointed investors. As of the close on December 24th, the widely watched Dow Jones Industrial Average, the benchmark S&P 500, and the Nasdaq Composite Index, driven by growth stocks, have all risen by 15%, 18%, and 22% respectively. Although investors - including Wall Street analysts and commentators - generally expect this steady upward trend to continue into the new year, not everyone is so optimistic. One moderate critic on Wall Street, in fact, one of the most influential policymakers in the United States, is Federal Reserve Chairman Jerome Powell. Federal Reserve Chairman Powell points out an undeniable stock market risk Normally, Powell and other Fed officials avoid directly commenting on stock market performance. The Fed's core mission is to formulate monetary policy to achieve the dual mandate of maximum employment and price stability; and stock market fluctuations, relative to these core goals, are only of secondary importance. That being said, Powell, whose term expires in May 2026, recently mentioned in response to questions the potential impact of stock market valuations on the policy-making of the Federal Open Market Committee (FOMC). As a decision-making body consisting of 12 members (with Powell being one of them), the core responsibility of the FOMC includes adjusting the federal funds rate, conducting open market operations (such as buying and selling long-term government bonds to regulate market yields), to achieve the monetary policy goals of maximum employment and price stability. Powell stated, "We do look at overall financial conditions and ask ourselves if our policies are affecting those conditions as we expect. But you are right, for example, by many measures, stock prices are quite high in valuation." The focus of this response is on the last sentence, "stock prices are quite high in valuation." Valuation may be subjective - what you consider expensive, others may deem reasonable - but one objectively validated indicator provides solid support for Powell's assertion that the market is at historically high levels: the Shiller price-to-earnings ratio, also known as the cyclically adjusted price-to-earnings (CAPE) ratio, of the S&P 500 index. This indicator adjusts earnings fluctuations over ten years, accurately capturing the core fact that current stock prices are indeed at quite high valuation levels. This indicator dates back to January 1871, a total of 155 years. The average value during this period is 17.32 times, and as of the close on December 24th, it has risen to 40.74 times, just a step away from the peak of the current bull market at 41.20 times, and close to the historical peak of 44.19 times set before the bursting of the internet bubble in December 1999. Historical experience shows that a Shiller P/E ratio exceeding 30 times has never been able to be sustained in the long term. It has only occurred six times over 155 years, including the current one; following the previous five instances, the Dow Jones, S&P 500, and/or Nasdaq Composite Index ultimately fell by 20% to 89%. Remember, when overall market valuations are far above historical norms, a mean reversion will not happen overnight. Even if Powell steps down in May 2026, his last sentence will continue to echo on Wall Street. The Shiller P/E ratio is not a timing tool, and the comments of the Federal Reserve Chairman may also be wrong - after Alan Greenspan's famous speech on "irrational exuberance," it took more than three years for the stock market to peak again - but this indicator has remained almost unbeatable in predicting stock market risks. Time will eventually heal all short-term wounds on Wall Street Based on history alone, it can be stated: significant pullbacks, bear markets, and even elevator-like crashes are not a question of "if" but "when." Most investors naturally hate emotion-driven declines, but these storms also bring a glimmer of light. Although seeing the account showing glaring red numbers may be uncomfortable, pullbacks, bear markets, and crashes are healthy and inevitable stages in the investment cycle. Wall Street's pendulum swings both ways, and occasional declines are just the "ticket" to enter this global wealth-building machine. However, stock market cycles are not mirror images of each other - this is crucial. In June 2023, shortly after the S&P 500 rebounded by over 20% from the 2022 bear market low and officially entered a new bull market, Bespoke Investment Group published a set of data comparing the durations of every bull and bear market in the S&P 500 over the past 94 years. On one hand, from the start of the Great Depression in September 1929, the average bear market in the S&P 500 lasted only 286 calendar days - about 9.5 months - before ending; most emotion-driven "elevator-like" declines are fleeting. On the other hand, from September 1929 to June 2023, the average bull market in the S&P 500 lasted for 1011 calendar days, which is 3.5 times the typical duration of a bear market. While the market experiences ups and downs, it disproportionately spends time on the rise. In fact, every correction, bear market, and crash experienced by the Dow Jones, S&P 500, and Nasdaq have ultimately been smoothed out by subsequent bull markets. Therefore, although Powell's comments on valuation point out historical headwinds that may hit Wall Street in 2026, time has repeatedly proven that for long-term investors, it can heal all short-term wounds.