High valuations and weak seasonality: Should investors be concerned?

By David Wismer

If investors are looking for things to worry about, 2026 has provided no shortage of candidates—even as the S&P 500 remains close to all-time highs.

Inflation is an ongoing concern for both companies and consumers. The conflict with Iran continues to create geopolitical and energy-market uncertainty. The Federal Reserve is operating under new leadership and wrestling with the direction of interest rates.

Questions remain about the long-term profitability of the artificial intelligence boom, although it continues to help drive impressive corporate earnings. The nation’s debt burden has surpassed $40 trillion, while recent economic data creates a mixed picture of consumer strength and the pace of economic growth.

Many are also concerned about the bond market and rising long-term interest rates in the U.S. and around the world.

That is already a fairly full worry list.

But should investors add two more items: high stock-market valuations and the historically difficult late-summer and fall calendar?

Where do valuation measures stand?

Richard Lehman, a Wall Street veteran, behavioral-finance professor, and contributor to Proactive Advisor Magazine, recently examined the valuation question. His conclusion was more nuanced than the familiar warning that “stocks are expensive; therefore, a correction must be coming.”

There is little question that valuations are elevated by several widely followed measures. Lehman cited second-quarter data from Current Market Valuation showing that the Buffett Indicator, the S&P 500 cyclically adjusted price-to-earnings ratio (CAPE), and price-to-sales measures were all classified as “strongly overvalued.” (The Buffett Indicator has reached all-time highs in 2026.)

The CAPE ratio stood at 39.7, roughly 92% above its modern-era average of 20.7 and 2.3 standard deviations above that average.

Those numbers sound ominous. But the historical record of what they imply is not nearly as clear as investors might like.

Lehman’s larger point is that valuation measures have not provided a dependable signal for determining when investors should get out of the market. Valuations can remain elevated for long periods, and what looks extreme today can become even more extreme tomorrow.

He uses the famous example of Federal Reserve Chair Alan Greenspan’s “irrational exuberance” warning in 1996. The market did eventually experience the dot-com collapse—but not until years later, after valuations had climbed substantially higher.

Valuation also has a behavioral dimension. After a strong market advance, investors naturally become more protective of their gains. Loss aversion can make the possibility of giving those gains back feel increasingly uncomfortable. At the same time, fear of missing out can make investors reluctant to leave a rising market. Elevated valuations can intensify both emotions at once.

In other words, valuations may tell us something useful about risk and long-term expectations without telling us precisely what the market will do next week, next month, or even next year.

When the warning signs start to stack up

And then there is the calendar.

Another recent Proactive Advisor Magazine article, by Rob Hanna of Quantifiable Edges, looked at what has historically happened to the broad market after both June and July finished lower. That setup applies to 2026: The S&P 500 declined 1.09% in June and another 0.13% in July on a price-return basis.

Since 1950, both months have been negative in the same calendar year only 14 times, including this year.

What happened next in the prior instances? August was mixed. September was not. Eleven of the 13 prior Septembers finished lower, many by meaningful amounts.

A separate analysis by behavioral-finance strategist Tom Howard also puts September at the bottom of the seasonal monthly rankings. Looking at S&P 500 monthly results from 1975 through 2024, September was the only month with a negative average return, at -0.7%. October, meanwhile, produced the widest historical range of monthly outcomes and the highest standard deviation in the study.

The following chart ranks the months using a score that considers the highest maximum, minimum, and average returns and the lowest standard deviation. The bars show the absolute range of minimum to maximum monthly returns, while the line shows the average monthly return. By this measure, April is the most attractive month to invest, while September is the worst.

Put the pieces together—elevated valuations, a weak June and July, September’s poor historical reputation, and October’s history of volatility—and it is not difficult to build a bearish narrative for the next couple of months.

But that may be exactly where investors need to be careful.

Seasonality describes tendencies, not certainties. Valuation measures provide context, not certainty that a correction or crash is coming. Howard’s analysis cautions against using calendar patterns as the basis for long-term investment decisions because every year develops differently.

Awareness is not prediction

So, should investors be worried?

I would phrase it differently. Investors should be aware.

There is a meaningful distinction between recognizing risk and believing we can predict precisely when that risk will materialize. High valuations deserve attention. So do economic conditions, geopolitical events, interest rates, market breadth, investor sentiment, and many other variables. But turning one or two warning signs into an all-or-nothing market call can create a new risk: being wrong about the timing.

For financial advisers, this is also a client-management issue. Headlines about extreme valuations or “the worst month for stocks” can easily prompt questions such as, “Should we get out now?” The better conversation may be about whether the client’s portfolio is prepared for a range of outcomes in the first place.

That philosophy is central to how Flexible Plan Investments (FPI) approaches investing.

Rather than attempting to predict the exact date of the next correction, FPI’s approach to dynamic risk management focuses on observable and measurable market conditions. Strategies use rules-based methodologies designed to respond as opportunities and market risk change. FPI also uses multi-strategy diversification—combining different asset classes, investment methodologies, and time frames—so that a portfolio is not dependent on one or two algorithmic indicators or often-diverging market forecasts being correct.

That does not mean risk disappears. Nor does it mean every strategy will respond perfectly to every market event. The objective is to build portfolios with multiple ways to adapt as conditions change and that seek to manage risk before an investor is forced to make an emotional decision in the middle of market stress.

That seems particularly relevant today.

Markets will always provide something to worry about. The more important question is whether a portfolio is built to deal with what happens next—even when no one knows exactly what will happen or when.