Stock market investors are enjoying yet another strong year. The S&P 500 has gained about 14% so far, shrugging off, for the most part, uncertainty over tariffs, interest rates and the latest government shutdown.

Should this worry us?

Since ancient times, soothsayers have been attempting—without luck—to forecast the future. As it relates to investment markets, the frustrating reality is that no one knows what the future will bring. But that doesn’t mean there’s nothing we can do.

As investor and author Howard Marks emphasizes in Mastering the Market Cycle, we can still do our best to make judgments with the information we have. We aren’t completely in the dark.

What does the data say? In short, the market has had a remarkable run. Since the market bottom in 2009, the S&P 500 is up about 1,200%, including dividends. Over the past 10 years, it’s gained more than 14% a year—far above the long-term average of 10%.

Other metrics tell a similar story. The market’s price-to-earnings ratio is north of 23. That compares to a 40-year average of just 16. Investors today, in other words, are paying nearly 50% more for each dollar of corporate earnings.

The cyclically-adjusted P/E (CAPE) ratio, developed by Yale professor Robert Shiller, employs an even longer-term dataset, going back to the 1800s. It indicates that today’s market is even more expensive than it was at the peak in 1929, and that the only time it’s been more richly valued was in 2000, just before it dropped 60%.

There are other risks. Washington seems as divided and dysfunctional as ever. That’s another reason observers feel the stock market is out of touch with reality.

In late-September, Federal Reserve chair Jerome Powell commented that stocks were “fairly highly valued.” Others share this opinion.

Aswath Damodaran is a professor at NYU and well known for his expertise on valuation. In response to Powell’s recent comments, he put together a detailed analysis and reached this conclusion: “It is undeniable that this market is richly priced on every metric…”

Morningstar analyst Dan Kemp makes this observation: “The fact that equity prices have rallied as economic risks have grown suggests that we may be entering the ‘all news is good news’ part of the market cycle…”

Longtime investment manager Jeremy Grantham is even more pointed in his commentary: “This is the highest-priced market in the history of the stock market in the U.S.” In the past, Grantham has also pointed to another indicator as a market barometer: He looks for signs of what he calls “truly crazy behavior.” He saw this in 2020 and 2021, when meme stocks, SPACs and other speculative crazes drove the market higher and higher. We’re seeing shades of the same behavior today.

Consider the Meme Stock ETF (ticker: MEME). It launched in 2021 but liquidated two years later, after the market sank and the fund lost most of its value. But now it’s back. The fund’s manager just relaunched a new MEME fund, similarly designed to take advantage of the market’s current highfliers.

Or consider the flurry of new leveraged funds, with some promising to magnify daily returns by three, four and even five times. The Wall Street Journal discussed this trend in a recent article titled “These Funds Can Go to Zero.” That wasn’t hyperbole. Some leveraged funds have literally lost all of their value, and yet, fund companies are bringing more of them to the table.

Along these same lines, while I recognize the danger of anecdotal evidence, I thought it was notable last week when a high school student shared with me that he had been trading options—and making money at it.

Where do all these data points leave us?

Howard Marks offers what, in my view, is the best prescription. “We can’t predict,” he says, “but we can prepare.” Here are ways you might put that into practice:

Step one would be to bear in mind the lesson of 1996. That was when Alan Greenspan, then the chair of the Federal Reserve, declared that the market was exhibiting “irrational exuberance.”

It wasn’t an unreasonable observation: At that point, in December 1996, the market had gained nearly 70% in the space of just 24 months. And Greenspan’s concern was ultimately validated: In the end, the market did drop, by more than 50%. The problem, though, is that that decline only came later. After Greenspan’s warning, the market continued to rise for three more years, nearly doubling again before it dropped.

The result? When stocks did eventually fall, they never fell as low as they were on that day in 1996 when Greenspan issued his warning. The lesson for investors: Sometimes when the market looks too high, it is indeed too high. But there’s no guarantee that it can’t go higher still before it goes lower. Timing, in other words, is always an open question. Even when all of the data and all of the commentators seem to agree, we can never be sure.

That’s why it’s so important to consider your timeframe. If you have no foreseeable withdrawal requirement, then a reasonable response to a pricey market might be to do nothing at all.

On the other hand, if you do have an upcoming need for a withdrawal, then this would be a good time to audit your risk level and to take it down, if need be.

Either way, consider both your quantifiable needs as well as what you might call the Alka Seltzer question: Ask yourself how you might react if you saw your portfolio drop 30% or 50% even if you have no immediate need for a withdrawal. Then work backward and ask whether an adjustment to your asset allocation might be in order.

I’ve often compared the market to a Rorschach test, and that’s very much the case today. That’s why the most important thing, in my view, is to maintain a balanced outlook. The reality is that even the smartest and most knowledgeable market observers still can’t see the future.

And market-timing strategies, appealing as they might seem, tend to be unreliable in practice. In his recent analysis, Aswath Damodaran tested a number of approaches to see if they would have helped investors through past downturns. His conclusion? Because every downturn is different, “there is not a single market timing combination” that would have been consistently profitable.

That’s why this is a good time—while the market is strong—to prepare, even if we can’t predict.​