In the 2008 financial crisis, legendary bear Michael Burry made his name. His Scion Asset Management has now disclosed bearish bets against Nvidia and Palantir. Goldman Sachs CEO David Solomon said, “Over the next 12 to 24 months, there’s a good chance of a 10% to 20% pullback.” Morgan Stanley CEO Ted Pick echoed: “We should also welcome a potential pullback—on the order of 10% to 15%.” Meanwhile, Nvidia’s €1 billion AI data-center agreement with Deutsche Telekom was completely overshadowed by fear in the market. Multiple data points indicate fragile conditions and a flight to safety.

Shiller P/E Breaks 40

When a classic valuation metric—pioneered by Benjamin Graham and popularized by Nobel laureate Robert Shiller—starts flashing, Wall Street pays attention. The cyclically adjusted price-to-earnings ratio (Shiller P/E, or CAPE) has recently broken above 40.

This is only the second time on record the indicator has reached such heights; the previous occasion was 1999 at the peak of the dot-com bubble. By averaging inflation-adjusted earnings over the past 10 years, CAPE smooths business-cycle noise.

From a historical perspective, the reading is alarming. As of September 14, 2025, the Shiller P/E stood at 39.58—the current bull market’s peak and the third-highest reading in more than 150 years. The long-term average is about 17, putting today’s multiple at more than double historical norms.

History is not comforting. Over the past 154 years, there have been six episodes (including now) when CAPE exceeded 30 for a sustained period. The prior five episodes were all followed by significant market drawdowns ranging from 20% to 89%.

Risk-Off Sentiment Is Rising

Despite Palantir’s third-quarter revenue rising 63% year-over-year to $11.8 billion and an upward revision to full-year guidance, the market balked at its roughly 240x forward P/E, sending the stock lower. Chip names led declines: the Philadelphia Semiconductor Index (SOX) plunged more than 4%. Intel sank 6%, Tesla fell over 5%, and Nvidia slid nearly 4%. Apple’s slight +0.1% gain was a lone, fragile support. In sharp contrast to the tech slump, defensive areas such as financials, real estate, and healthcare drew fresh inflows.

On the crypto side, Bitcoin fell below the $100,000 threshold for the first time since June, briefly touching around $99,932 and slicing through its 200-day moving average to log the second-largest one-day drop of the year. Ether tumbled nearly 9%, at one point down more than 15%. According to Coinglass, 342,000 traders were liquidated over the past 24 hours, with notional losses exceeding $1.3 billion—long positions accounted for 85% of the damage.

Buffett’s Caution

Berkshire Hathaway’s latest report shows its cash pile has surged to a record $382 billion—up $37.6 billion from the prior quarter, the equivalent of $420 million more in cash each day.

Beyond trimming equities—Berkshire has been a net seller of roughly $184 billion over the past three years—the company has also refrained from buybacks for five straight quarters. As Edward Jones analyst Jim Shanahan put it, “In Buffett’s view, there just aren’t many opportunities right now.”

History’s Lesson: What Follows High Valuations

Research Affiliates’ CAPE-based model projects that over the next decade, U.S. large-cap growth stocks—including the “Magnificent Seven”—could deliver annualized real returns of –1.1%, while U.S. large-cap value may return a positive 1.6%. Brighter prospects are seen in U.S. small caps, Europe, and emerging markets, with expected annualized real returns of 4.8%, 5.0%, and 5.4%, respectively.

When CAPE clears 40, when Buffett sits on $382 billion of cash, and when Bitcoin breaks below $100,000, the message converges: market risk appetite is undergoing a fundamental shift. History suggests that at valuation extremes, prudence and balanced allocation may be the best strategy for navigating uncertainty.