The U.S. stock market today presents a paradox: record-high valuations amid growing economic uncertainties. While major indices continue their upward trajectory, seasoned market observers raise red flags about potential overvaluation. Market overvaluation occurs when asset prices significantly exceed their intrinsic worth, driven more by speculation and investor sentiment than underlying business fundamentals. Historical patterns show that such periods of excessive valuation—whether developing gradually or rapidly—typically end in market corrections. Here are three key indicators to help identify whether the market is overvalued.

1. Shiller P/E ratio

The Shiller P/E ratio, also known as the cyclically adjusted price-to-earnings (CAPE) ratio, is a valuation measure that adjusts the traditional P/E ratio by averaging inflation-adjusted earnings over the past 10 years. It provides a longer-term perspective on market valuation, smoothing out short-term fluctuations in earnings. Currently hovering around 38, significantly above its historical average of 17, this metric sends a clear warning signal to investors....