Before Feb. 19, the stock market was seemingly unstoppable. The widely tracked Dow Jones Industrial Average (^DJI -5.50%), broad-based S&P 500 (^GSPC -5.97%), and growth-dependent Nasdaq Composite (^IXIC -5.82%) all achieved numerous record-closing highs.

The wind in Wall Street's sails was based on a confluence of factors, which includes:

This last catalyst is of high intrigue for investors. The Dow, S&P 500, and Nasdaq Composite all soared during Trump's first term in office, and there's been hope for an encore performance. Trump's strong belief in deregulation, coupled with his desire to reduce the peak marginal corporate income tax rate, appeared to bode well for the stock market.

A person drawing an arrow to and circling the bottom of a steep decline in a stock chart.

Image source: Getty Images.

But a newly updated forecasting tool from the Federal Reserve Bank of Atlanta suggests the good times may be over for Wall Street and the U.S. economy.

The U.S. economy hasn't done this since the tail end of the Great Recession

In October 2011, the Atlanta Fed introduced what's become known as its "GDPNow" model. The purpose of its model is to take into account an assortment of monthly reported economic data points and estimate how much gross domestic product (GDP) will increase or contract during the current quarter. The GDPNow model forecast is updated up to seven times per month.

Although the Atlanta Fed's tool can't concretely predict the future, it's been relatively accurate in its GDP estimations spanning more than 13 years. Per the Atlanta Fed, the GDPNow model "has an average absolute error of 0.77 percentage points when forecasting final GDP growth."

In late January, the GDPNow model was forecasting robust first-quarter economic growth of 3.9%. But as you can see, this estimate has rapidly tapered.

Following an April 1 update, the Atlanta Fed's GDPNow model is forecasting a 3.7% contraction in the U.S. economy for the first quarter. Excluding the COVID-19 pandemic, which was a unique and non-replicable period for the U.S. economy that saw economic activity slow dramatically, the last time the U.S. economy contracted by more than 3.7% was the first quarter of 2009, which produced a 6% decline in real GDP.

In other words, the U.S. economy is projected to have its worst organic quarter for growth, excluding the COVID-19 quarters, since the Great Recession.

Are the Dow, S&P 500, and Nasdaq Composite going to crash?

With first-quarter GDP forecast to decline by levels not witnessed since the benchmark S&P 500 lost 57% of its value on a peak-to-trough basis, the GDPNow model might have some investors questioning whether a stock market crash is coming.

Based solely on catalysts, there are some potential triggers for emotion-driven downside in stocks.

For example, President Trump's April 2 "Liberation Day" unveiled sweeping global and reciprocal tariffs. Aside from the uncertainty these added import taxes bring to the table for American consumers, there's a strong possibility that retaliatory tariffs will go into effect.

According to a study released in December by four New York Fed economists at Liberty Street Economics, the shares of public companies with direct exposure to President Trump's China tariffs in 2018-2019 notably underperformed those businesses without any exposure. In addition, these underperforming companies endured worse future outcomes from 2019 to 2021, which included average declines in profit, sales, employment, and labor productivity.

S&P 500 Shiller CAPE Ratio Chart

S&P 500 Shiller CAPE Ratio data by YCharts.

The other prominent issue for the stock market is that it entered 2025 at its third highest valuation multiple dating back 154 years.

The Shiller price-to-earnings (P/E) ratio, which is also known as the cyclically adjusted P/E ratio, or CAPE Ratio, is a valuation tool based on average inflation-adjusted earnings over the previous 10 years. The advantage of analyzing 10 years of earnings history is that it tends to smooth out the impacts of recessions and shock events, such as the COVID-19 pandemic.

In December, the S&P 500's Shiller P/E Ratio tipped the scales at 38.89, which is its high for the current bull market. The only two times the Shiller P/E has been higher is during the first week of 2022 (it briefly topped 40) and before the dot-com bubble burst (a peak of 44.19).

Since January 1871, the Shiller P/E has surpassed 30 on just six occasions, including the present. All five prior occurrences were eventually followed by declines of at least 20% in the Dow, S&P 500, and/or Nasdaq Composite.

While the ingredients for a crash are present, it doesn't mean one will necessarily occur.

A smiling person reading a financial newspaper while seated at a table in their home.

Image source: Getty Images.

A surefire buying opportunity may await investors

Understandably, big downdrafts in Wall Street's major stock indexes can be scary, especially for new investors who might not have experienced a double-digit decline before. But if there's one thing that comes very close to being a guarantee on Wall Street, it's that time heals all wounds.

Every year, the analysts at Crestmont Research refresh a data set used to calculate the rolling 20-year total returns, including dividends, of the S&P 500, dating back to the start of the 20th century. Some of you may astutely note that the S&P didn't exist before 1923. Crestmont remedied this by tracking the total return of its components in other major indexes from 1900 to 1923.

Crestmont's data set yielded 106 separate rolling 20-year periods (1900-1919, 1901-1920, 1902-1921, and so on, to 2005-2024). What researchers discovered was that all 106 rolling 20-year periods produced a positive annualized return. This is to say that if you, hypothetically, purchased an S&P 500 tracking index at any point between 1900 and 2005 and held on to this stake for 20 years, you made money every time, regardless of whether there were recessions, depressions, wars, or a pandemic.

^SPX Chart

^SPX data by YCharts. The above chart of the S&P 500 only goes back to 1950.

Furthermore, these annualized returns were often robust. Whereas the bottom decile of these 106 rolling 20-year periods averaged a 5.1% annualized total return, half of these rolling periods generated an annualized total return rate of 9.3% to 17.1%. Investors didn't just eke out small gains -- in many instances, their patience paid off with superior return rates to all other asset classes.

The point being that stock market corrections, bear markets, and even crashes, tend to be short-lived. When investors take a step back and widen their lens, they'll discover a market that consistently rewards patience.

If the Atlanta Fed's GDPNow forecast proves accurate and economic weakness tips the scales in favor of swift downside for the Dow Jones, S&P 500, and Nasdaq Composite, use it as an opportunity to put your money to work in stocks at a discount.