Red Flags & Dividend Dreams

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My Aunt Mildred, God love her, calls me whenever the market sneezes. Not to ask for financial advice, mind you – she still thinks Beanie Babies are a solid investment – but to express a vague, escalating dread. “It’s happening again,” she’ll say, her voice tight with anxiety. “All those numbers…going up and down. It feels…unnatural.” And honestly? She’s not wrong. Lately, even I’m starting to feel a little queasy, and I spend my days actively seeking out companies that reliably hand over a portion of their profits. It’s a comfort, that predictability. A little island of calm in a sea of algorithmic trading and breathless tech hype.

The S&P 500, they tell me, is up a ridiculous amount over the last three years. Eighty percent, apparently. Which is…fine. Except, lurking beneath the surface, are a couple of signals that remind me of that time I accidentally signed up for a competitive eating contest. Everything looked promising at first, but then the hot dogs started piling up, and I realized I’d made a terrible mistake. These aren’t flashing neon warnings, more like subtle shifts in the air pressure. Things are…tight.

The Bond Market’s Quiet Panic

The bond market, it turns out, is whispering anxieties that even my Aunt Mildred hasn’t picked up on. The spread between what companies have to pay to borrow money and what the U.S. government pays is… shrinking. Down to a measly 71 basis points, Bloomberg reports. That’s the tightest it’s been since 1998, which, if you recall, was a time when everyone was convinced their pet rock was going to make them rich. Basically, investors are so eager for anything that isn’t another metaverse land grab that they’re willing to accept practically nothing for the risk. It’s a bit like agreeing to housesit for someone who owns a single, very temperamental goldfish.

Now, you could argue that everyone’s confident these companies will keep paying their debts. Especially the ones building all this artificial intelligence infrastructure. But I tend to be a pessimist. It’s a useful trait when you’re trying to find stable dividend payers. And frankly, it feels like everyone’s collectively holding their breath, hoping nothing disrupts the narrative. A tariff here, a supply chain hiccup there…and suddenly, those bond prices are falling, yields are rising, and everyone’s scrambling for the exits.

The CAPE Ratio & the Weight of History

Then there’s the CAPE ratio, which sounds like a type of Italian pasta but is actually a measure of how expensive the stock market is. Developed by some very smart people – Nobel Laureates, no less – it looks at average earnings over the past decade. And right now? It’s at 40.1. The highest it’s been since the dot-com bubble. Which, as I recall, involved a lot of questionable business plans and even more questionable haircuts.

Historically, when the CAPE ratio gets this high, things tend to…correct. Not immediately, of course. The market enjoys a good, slow burn. But the numbers don’t lie. Over the next year, you can expect modest declines. Over the next three years? Well, let’s just say you might want to reconsider that yacht purchase. The table shows the best, worst, and average returns following these high CAPE readings. It’s not pretty.

Time Period S&P 500’s Best Return S&P 500’s Worst Return S&P 500’s Average Return
One year 16% (28%) (3%)
Two years 8% (43%) (19%)
Three years (10%) (43%) (30%)

Of course, all these historical metrics are just that – history. Maybe artificial intelligence will magically boost profit margins. Maybe everyone will suddenly decide that sensible investing is cool. But I’m not betting on it. I’m more inclined to sell anything I’d be uncomfortable holding through a serious downturn and focus on companies that actually share their profits, not just promise future growth.

The market is expensive. The risks are skewed. And my Aunt Mildred is starting to ask increasingly pointed questions about my investment strategy. It’s a good time to be cautious. And maybe, just maybe, to start looking for a good deal on Beanie Babies. You never know.

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2026-02-14 11:12