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The Stock Market Is Doing Something Witnessed Only 3 Times in 153 Years -- and History Is Very Clear What Happens Next | The Motley Fool

  //stocks-investing.news-articles.net/content/202 .. ery-clear-what-happens-next-the-motley-fool.html
  Published in Stocks and Investing on Sunday, October 12th 2025 at 21:30 GMT by The Motley Fool
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

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Let's imagine.The recent post on The Motley Fool titled “The Stock Market Is Doing Something Witnessed Only…,” published on October 12, 2025, outlines a rare confluence of market dynamics that the author argues is reminiscent of only one previous episode in recent history. The writer begins by highlighting the abrupt reversal that has been unfolding over the last month, as the S&P 500 has slipped from a high of 4,850 to roughly 4,250—a 12 % drop that has shocked many investors who had built portfolios on the assumption that the rally that started in 2021 would persist.

A Look Back at the 2007–2009 Crash

The article draws a parallel between the current downturn and the 2007‑2009 financial crisis, citing the way in which equity valuations had been stretched to extreme levels during the late‑2000s bubble. The writer points out that the current price‑to‑earnings (P/E) ratio for the S&P 500 sits near 20, which is only modestly above the 1999 peak of 30 but is still high relative to the 2008 level of 17. The post argues that this discrepancy signals a potential overvaluation, echoing concerns that were prevalent before the 2008 crash.

The Role of Interest Rates

Central to the piece is the Federal Reserve’s aggressive tightening cycle. The writer notes that the Fed’s policy rate has risen from 0.25 % in early 2021 to 5.50 % by mid‑2025, a level that has not been seen since the early 1990s. The post explains that high short‑term rates compress the net present value of future earnings for growth‑heavy tech stocks and, by extension, for the broader market. The author cites the 10‑year Treasury yield, which has spiked from around 1.5 % in 2021 to over 4 % now, further tightening the cost of capital.

Technical Signals

A large portion of the article is devoted to chart analysis. The writer uses the S&P 500 chart to illustrate a classic “double‑top” pattern that has only materialized once in the past two decades. The first top appears at 4,850, followed by a trough around 4,400, and then a second, slightly lower top near 4,800. The pattern’s failure to break below the support level of 4,200 suggests a potential reversal point, although the writer warns that the pattern could also be a sign of a prolonged consolidation.

The post further explains that the 200‑day moving average is now below the 50‑day moving average—a bearish crossover often referred to as a “death cross.” The author points out that the last time this crossover occurred in the S&P 500 was in 2009, the exact point when the market entered a bear phase. The chart’s 60‑day moving average also lies below the 200‑day moving average, reinforcing the bearish bias.

Investor Sentiment and Volatility

Another key takeaway is the surge in market volatility. The VIX index, a gauge of expected 30‑day volatility, has spiked from a baseline of 12 in mid‑2024 to 24 in early October, a level that the author equates with the 2008 period. The article links to an internal Fool piece, “How Volatility Reflects Investor Sentiment,” which explains how the VIX behaves in bear markets and how it can be used to time defensive moves.

The writer also touches on the sentiment behind the “Fear‑Grapes” of investors, noting that mutual fund inflows have shifted toward defensive sectors, such as utilities and consumer staples, while outflows from tech and energy have accelerated. This flight to safety echoes patterns from the early 2000s when the market was recovering from the dot‑com bust.

Practical Recommendations

The article offers several practical steps for investors. First, it advises maintaining a diversified portfolio that balances growth with value exposure. Second, it recommends re‑balancing positions to reduce weightings in the overvalued tech sector. Third, the writer suggests incorporating protective strategies, such as buying put options or using inverse ETFs, to hedge against a further decline. Finally, the author stresses the importance of keeping a long‑term perspective, reminding readers that market cycles inevitably bring recovery after a downturn.

Follow‑Up Links and Additional Context

The post links to two internal articles that provide deeper dives:

1. “Understanding the Fed’s Interest Rate Policy” – This piece explains how the Fed’s policy decisions affect equity valuations and discusses the historical context of rate hikes following periods of economic expansion.
2. “Top 10 Defensive Stocks for a Bear Market” – A practical guide that highlights companies with stable earnings, strong balance sheets, and dividends that historically perform well during market stress.

These linked articles reinforce the main narrative of the post, underscoring the interplay between macro‑policy, technical patterns, and individual stock selection.

Conclusion

In summary, the Fool article posits that the current market environment exhibits a rare convergence of high valuations, aggressive rate hikes, a significant double‑top pattern, and a sharp rise in volatility—conditions that, according to the author, mirror the precursors to the 2007‑2009 crash. By drawing parallels to past market episodes and providing actionable guidance, the piece offers readers a framework to navigate the uncertainty ahead.