Warren Buffett's historic $127 billion warning to Wall Street happens to align with another stock market alarm. Specifically, the S&P 500 currently trades at a historically expensive valuation. The index achieved a cyclically adjusted price-to-earnings ratio (CAPE) of 37.9 in December 2024, which is a substantial premium to 20-year average of 27.

U.S. stocks pulled back from their all-time high on Friday as they closed out a second straight winning week. The S&P 500 slipped 0.3% a day after setting a record. The Dow Jones Industrial Average dipped 140 points,