Is a Stock Market Crash Coming in 2026? Warren Buffett's Actions Suggest Caution

Here’s a puzzle that should concern investors: the stock market has delivered impressive double-digit gains three years in a row, yet signs of excess are flashing red everywhere. President Trump’s tariff policies have weakened the job market, major valuations have soared to levels seen only during the dot-com bubble and COVID pandemic, and yet investor sentiment keeps climbing higher. Against this backdrop, what does it mean when one of history’s greatest investors—Warren Buffett—spends three consecutive years selling more stocks than he buys? The answer might illuminate what lies ahead for the next stock market crash or significant correction.

Why Current Market Conditions Are Triggering Crash Prediction Concerns

The numbers tell a concerning story. The S&P 500 currently trades at 22.2 times forward earnings, far above its five-year average of 20 and ten-year average of 18.7. According to FactSet Research, this valuation level has only been sustained twice in the past four decades: during the dot-com bubble and the COVID-19 pandemic. Both periods ended in bear markets.

To make matters worse, bullish sentiment among individual investors has reached extremes. Weekly surveys from the American Association of Individual Investors (AAII) show that bullish sentiment hit 42.5% during early January 2026, well above the five-year average of 35.5%. Here’s where it gets interesting: this measure is a contrarian indicator. Historical data suggests that when bullish sentiment is this high, forward market returns tend to be weaker, not stronger.

Meanwhile, tariffs are weighing on economic fundamentals. Federal Reserve research indicates that trade restrictions historically act as a drag on growth, and the U.S. job market has already begun showing signs of weakness. Torsten Slok, chief economist at Apollo Global Management, points out that forward P/E multiples around 22 have historically correlated with annual returns below 3% in the following three years—hardly an exciting prospect for investors seeking gains.

Warren Buffett Cannot Time the Market, But His Philosophy Speaks Volumes

Warren Buffett has been refreshingly honest about one thing: he cannot predict short-term stock market movements. In an editorial during the depths of the 2008 financial crisis, when the S&P 500 had plummeted 40%, Buffett wrote that he had “not the faintest idea” whether stocks would rise or fall within a month or a year.

But here’s the crucial part. Buffett also outlined a simple principle that should guide all investors: “Be fearful when others are greedy, and be greedy when others are fearful.” This contrarian approach has nothing to do with predicting exact market moves and everything to do with reading the emotional temperature of the market. During the 2008 crisis, fear was pervasive, so he recommended buying. Today, the situation has flipped. Greed is abundant, bullish sentiment is at elevated levels, and valuations have reached historically extreme territory.

Buffett’s reasoning on short-term forecasts is worth heeding. He compared market timing predictions to “poison” and urged investors to ignore them. Instead, he recommended focusing on finding understandable companies trading at reasonable prices—businesses likely to grow their earnings materially over the next five, 10, or 20 years. This long-term lens shifts attention away from the noise of next quarter’s movements and toward the clarity of decade-spanning fundamentals.

Berkshire Hathaway’s Selling Spree Reveals the Maestro’s Conviction

Actions speak louder than words. Under Warren Buffett’s leadership, Berkshire Hathaway has been a net seller of stocks—meaning shares sold exceeded shares purchased—for the last three consecutive years. This period precisely coincided with the substantial rise in stock market valuations from 15.5 times forward earnings in October 2022 to today’s 22.2 times.

What does this tell us? Buffett isn’t saying the market will crash tomorrow or next month. But his selling pattern strongly suggests that reasonably priced opportunities have become scarce. As valuations climbed, his buying appetite waned. This behavior aligns perfectly with his stated philosophy: when assets become expensive, you don’t buy; you wait for better opportunities when others are fearful.

The fact that Berkshire maintained this selling discipline even as the market soared indicates conviction. Rather than chase rallies, Buffett chose to accumulate cash and reduce exposure. Whether this strategy will look prescient or merely conservative depends on what happens next in the market cycle.

Reading the Warning Signs: Elevated Valuations Meet Excess Sentiment

The current environment presents an unusual combination of risk factors. Unlike 2008, we’re not facing immediate financial system collapse or credit crisis. But unlike 2010-2015, when stocks offered compelling value, today’s multiples leave little room for disappointment. If economic growth slows due to tariff impacts—and experts widely expect it will—those forward earnings estimates used to justify current valuations could face downward revision.

When that happens, market corrections tend to follow. The magnitude could range from a typical pullback of 10-15% to something more severe. History doesn’t offer certainty, but probability suggests caution is warranted.

What Should Investors Do When the Market Is Saturated With Optimism?

Given these dynamics, what’s the prudent response? Buffett’s contrarian framework offers practical guidance. Rather than asking whether a stock market crash is coming in 2026—a question nobody can answer with confidence—investors should assess whether current prices offer sufficient cushion for long-term wealth building.

For those overexposed to equities at today’s valuations, partial profit-taking makes sense. For those sitting on cash, this might be premature to deploy everything—history suggests better entry points often emerge within typical market cycles. For long-term investors with decades ahead, market volatility is an opportunity, not a threat.

The essential takeaway: don’t follow the crowd’s euphoria. Buffett’s decades of success stem not from predicting market crashes but from maintaining discipline when others abandon it. By this measure, the next stock market crash prediction many analysts offer is less important than whether you’re prepared for when inevitable corrections arrive.