What Warren Buffett on Current Market Tells Us: Is a Stock Correction Coming in 2026?

The $184 Billion Signal From Berkshire Hathaway

Warren Buffett’s recent investment moves have sent a clear message to the market: the stock environment no longer looks attractive. Through his role at Berkshire Hathaway, Buffett and co-managers Ted Weschler and Todd Combs have shifted from their traditional net-buying stance to consistent net-selling over the past 12 consecutive quarters.

The numbers tell the story. Since Q4 2022, Berkshire has liquidated a net $184 billion in stock positions—a dramatic reversal from Buffett’s famous 2018 CNBC statement that “it’s hard to think of very many months when we haven’t been a net buyer of stocks.” What makes this shift particularly significant is the timing: it occurred while Berkshire maintained a record $382 billion in cash and short-term investments as of September 2025.

This wasn’t a move forced by constraints. Rather, it reflects a deliberate choice to hoard cash despite having substantial firepower to deploy. For an investor who built a reputation on identifying undervalued opportunities, persistent selling paired with record cash reserves suggests one conclusion: attractive valuations have become scarce.

Why Valuations Have Reached Historic Extremes

The S&P 500 is currently trading at levels that rarely occur in modern market history. The index’s cyclically adjusted price-to-earnings (CAPE) ratio reached 39.4 in December—among the highest ever recorded. To contextualize this: since the S&P 500’s creation in 1957, the index has only traded above a CAPE of 39 during approximately 25 months. That amounts to just 3% of the index’s entire 68-year existence.

This valuation milestone carries historical baggage. The last comparable moment was October 2000, when the tech bubble peaked before a prolonged market decline. The current stretch of elevated multiples across the board suggests that either earnings growth must accelerate dramatically, or market corrections will eventually reset prices downward.

Buffett’s consistent selling behavior during this valuation environment reinforces a simple principle: when prices don’t justify the value, disciplined investors wait. His massive cash position essentially represents a bet that better opportunities will emerge.

What History Suggests for 2026 and Beyond

Past performance provides a sobering framework. Following the 25 instances since 1957 when the S&P 500’s monthly CAPE ratio exceeded 39, the index has posted predictable patterns:

12-Month Outlook: The average return following a CAPE above 39 has been negative 4%. If history repeats, the S&P 500 could decline roughly 4% by December 2026. More concerning, the best-case scenario saw gains of 16%, while the worst-case recorded a 28% loss—a wide range that underscores market unpredictability even in historically expensive periods.

Three-Year Outlook: The data becomes starker when extending the timeframe. The S&P 500 has never posted a positive return during the three-year period following instances when CAPE exceeded 39. Instead, the index has averaged 30% declines under these conditions. If that pattern holds, investors could face a cumulative 30% loss by December 2028.

None of this guarantees outcomes. Artificial intelligence adoption could accelerate profit growth, potentially justifying elevated valuations. But the historical template suggests caution is warranted.

A Practical Framework for Investors

The confluence of signals—Buffett’s $184 billion in net sales, record cash hoarding, and historically elevated CAPE ratios—points toward a market environment demanding prudent positioning. Rather than viewing this as a directive to abandon stocks entirely, consider it a signal to review portfolio construction.

Investors should honestly assess which holdings they would comfortably maintain through a 20-30% drawdown. Any position that would create anxiety or panic selling during volatility is a candidate for trimming now. Building dry powder—maintaining cash reserves or short-term securities—suddenly looks less like underperformance and more like strategic positioning.

The stock market’s rich valuation doesn’t predict a specific decline date. But history suggests that when an industry legend begins selling while holding record cash, and valuations reach their most expensive levels in generations, the risk-reward balance tips toward defense over aggression.