There have been a number of studies that model individual firms’ default or credit risk. Our study, however, focuses on the credit risk of the overall stock market. We calculate the expected bankruptcy probability to measure the credit risk of the stock market using a simple stochastic approach. We find that one-year expected bankruptcy probabilities of the stock market are extremely small but highly volatile over time. Changes in these probabilities appear to be consistent with actual stock market movements we have observed in the market. In addition, expected bankruptcy probabilities of the stock market turn out to be strongly positively correlated with subsequent market P/E ratios. Therefore, the expected bankruptcy probability is expected to play a critical role in explaining and forecasting future market P/E ratios.