The groundwork for the Federal Reserve's worst-case scenario appears to be unfolding.

At any given time, there are one or more significant market headwinds threatening to drive the benchmark S&P 500 ( ^GSPC 0.78% ) , iconic Dow Jones Industrial Average ( ^DJI 0.47% ) , and innovation-inspired Nasdaq Composite ( ^IXIC 0.98% ) lower.

For instance, the S&P 500's Shiller Price-to-Earnings Ratio, which is based on average inflation-adjusted earnings over the prior 10 years, recently achieved a closing multiple of almost 39. This makes the current bull market the third-priciest when back-tested 154 years . Historically speaking, when valuations get extended to the upside, the S&P 500, Dow Jones, and/or Nasdaq Composite eventually fall 20%, or considerably more.

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