Resolution Criteria

A market crash is generally defined as a decline of 20% or more in the S&P 500 index. This market resolves YES if the S&P 500 closes at or below 5,476 points at any time during 2026 (a 20% decline from the 6,845.5 closing level at the end of 2025). Resolution will be verified using the S&P 500 historical data from FRED or MarketWatch S&P 500 tracker.

Background

The S&P 500 rose 16.39% in 2025, extending a strong bull market. The CAPE ratio has been hovering in the 39-40 range recently and closed 2025 slightly above 40, which is only the second time in the history of the market that this valuation gauge has surpassed 40. The most recent was in 2020 as the markets recovered from the shock of COVID-19, and it previously reached that level in the run-up of the dot-com bubble.

Wall Street forecasts reviewed by CNN show a wide range of targets from strategists, though all estimate positive gains for 2026. Yardeni Research estimates odds of a severe correction or a bear market, triggered by either recession fears or an actual recession, remain low at 20%.

Considerations

When the S&P 500 has gained at least 15% in a year, the following year usually sees average returns of about 8%, though it's often a bumpy ride with average mid-year drawdowns of roughly 14%. Uncertainty about Trump's pick for Federal Reserve Chair as well as persistent geopolitical tensions and tariffs could create headwinds for stocks. The high CAPE ratio suggests that the "margin for error" is razor-thin, and forced buying increases the risk of a "melt-up" followed by a painful correction if the economic data turns sour.