CAPE

D74248

>My concern is that the S&P 500 is already near all-time highs Being at a high does not matter. But valuations do matter. CAPE, P/E, price to book, price to sales -- all these things are at interesting levels.

D74248

It is not the all-time highs that have people concerned, it is the valuations under pinning that. For the S&P 500 CAPE is now at 39.9. Price to book is at 5.5. Price to sales 3.39. The last two are all time highs, the only time that the first has been higher was just before the dotcom bubble burst. I don't know the future. But smart people are looking at this market with very jaundiced eyes.

LuxanHD

This is the way Stocks are at 2nd highest CAPE ratio in the history of the stocks market. At these levels, expected returns for the next ten years is 0 to 2% only. Getting 4.8% from long treasuries now is your only option until the CAPE ratio drops to sane levels again.

Huevos-revueltos36

I asked ChatGPT to summarize in one sentence for each category: • Gold price: Gold prices remain elevated in the U.S., signaling heightened investor fear and a continued flight to safety. • Oil price: Persistent weakness and volatility in oil prices point to softening demand and slowing economic activity. • Loss of real disposable income: Real disposable income is under pressure, reducing consumer purchasing power and increasing recession risk. • Rising credit card delinquencies: Credit card delinquencies are climbing rapidly, indicating growing financial stress among households. • Student loan debt: Record-high student loan balances are constraining cash flow and weighing on consumer spending. • Car repossessions at pre–Great Recession levels: Auto repossessions have returned to levels seen before the Great Recession, highlighting acute consumer distress. • Increasing foreclosures: Foreclosures are rising, revealing mounting pressure on households and cracks in the housing market. • Unemployment rate: The unemployment rate is trending higher, a classic late-cycle signal that economic conditions are deteriorating. • Consumer sentiment: Consumer confidence remains depressed, reflecting widespread concern about job security, inflation, and future income. • Non-farm payrolls: Non-farm job creation has been negative over an extended period, signaling sustained weakness in the labor market. • International markets outperforming U.S. markets: Continued outperformance of international equities suggests capital is rotating away from an increasingly fragile U.S. economy. Market crash risk indicators in the U.S. right now • Buffett Indicator: The market-cap-to-GDP ratio remains extremely elevated, indicating U.S. equities are priced far above the underlying economy. • Shiller CAPE Ratio: The Shiller CAPE is near historic extremes, a valuation condition that has repeatedly preceded major market drawdowns. • Margin debt levels: Margin debt remains high, reflecting excessive leverage that can rapidly unwind during market stress. • Insider buying: Corporate insider buying is near zero, suggesting executives see little value in current stock prices and are avoiding risk.

InsideCharacter2584

The practical first step is not timing, it is deciding a long-term asset allocation your father can stick with through a large drawdown (stocks, high-quality bonds, cash, etc.), then funding that mix. If the target includes a meaningful equity weight, lump-summing gets you to the policy faster, while a rules-based DCA (over a fixed window you pre-commit to) mainly reduces regret risk, not the risk of a crash. Holding extra cash "for a crash" is implicitly a market-timing bet, and Shiller CAPE is better at setting long-run return expectations than calling when a selloff happens. On the "AI bubble" concern, some areas can re-rate sharply, but the broader AI buildout still looks constrained by real-world bottlenecks (power, construction timelines, compliance, and capital discipline), so a simple "burst" narrative is often too binary.

_highfidelity

I’m always buying, every week. High CAPE with real rates coming down, QT ending, deleveraging seen in November, and rotation away from Mag 7 would suggest a continuation. I do think we are seeing some cracks where valuations are needing to be justified with both earnings and forward guidance. In Q1-Q2 2025, any company that mentioned AI got a post-earnings pop. Now we’re seeing the largest market cap companies with impressive earnings beats getting punished for average forward guidance.

Shoddy_Ad7511

I didn’t say the market will or will not crash. I’m saying CAPE is too simple to be any type of predictive metric for the US market

_highfidelity

My understanding is the CAPE ratio is a current metric but because the measurement utilizes 10 year inflation-adjusted earnings, it isn’t a nimble metric. It is useful when thinking of future returns for the next 10-15 years, but not necessarily next year. It also doesn’t account for either interest rates or an internal structure where a concentrated number of firms may have outsized impacts on the markets overall earnings. Ultimately it is still a useful metric, but should be interpreted in a wider perspective that includes real rates, liquidity regime (QT vs QE), leverage present in the market, and market concentration.

Shoddy_Ad7511

CAPE is an obsolete metric

NeoPrimitiveOasis

The record high CAPE ratio doesn't seem to figure into these predictions.

BenGrahamButler

I don’t invest in the S&P for this reason actually. Look at the CAPE ratio, sky high.

ttkk1248

Shiller CAPE is at the alarming (pre-crash) zone as well.

malignantz

[Building a Better CAPE Ratio - Early Retirement Now](https://earlyretirementnow.com/2022/10/05/building-a-better-cape-ratio/) Real CAPE might only be 35. Checkmate OP!

Krammsy

No, I'm referencing the CAPE index as well as Buffet's Market cap to GDP, invoking Buffet's expertise to make my point. Buffet uses GDP/Mcap as a valuation metric, I prefer the CAPE, both are at extremes only seen during major downturns.

Krammsy

To an art connoisseur, a $20K painting by a new upcoming artist is worth the price. To a new investor, the price of a 50% over-valued market while inflation's hovering @ 3%, it isn't. It's a convoluted argument, the only debate there is that regardless where the SPX is now it'll be higher in 10 years. (Which Buffet has suggested it won't) That could be 5% higher if we're as high as the CAPE index suggests, to wit, 2-3% inflation over that 10 year period would equate to a loss. Unless, of course, you're a collector of over-valued stock receipts.

Krammsy

Yes, there's far too much money sitting in stocks instead of circulating (velocity). The problem, the biggest & fastest gains come @ the tops of bubbles, we're all playing the pennies - steamroller game with an administration that doesn't realize rising stocks alone doesn't make an economy. CAPE index - [https://www.multpl.com/shiller-pe](https://www.multpl.com/shiller-pe) Buffet's indicator - [https://en.macromicro.me/charts/105/us-market-cap-gdp](https://en.macromicro.me/charts/105/us-market-cap-gdp)

ttkk1248

Did you consider Shiller CAPE ratio?

VotedOut

The majority of the posts here in this thread saying we're not in a bubble are objectively wrong. Buffett Indicator, CAPE ratio, and Mean Reversion of S&P 500 are at dotcom level valuations. [We ARE most definitely in a bubble.](https://www.currentmarketvaluation.com/) A bunch of stocks with high price-to-sales ratios have inflated anywhere from 200-2000% in the last two years or one year (looking at you PLTR). Money losing trash companies that make less than $0.2B top-line annually have gone up like 1000-2000% and added billions in market cap this year (shit like IONQ, RGTI, QBTS, ASTS, OKLO, and other shit). Telltale signs of a bubble. The real question is: How soon will the bubble actually burst?

Ecstatic_Food1982

>Several classes of shares are not historically overvalued (based on CAPE ratios, PE ratios, etc.). >These include non-tech US shares, European shares, UK shares and more. Plenty of overvalued UK and European shares.

tooclouds

Hi thanks for your take on this. I was looking at ERP from many institutions (Kroll, blackrock, Schwab) but settled on Damodorans because he updates more frequently and his estimates were not too far away from what other institutions were saying (although it seems like his is the most pessimistic of the bunch). When you mention the ERP going to 4 and rebalancing again, I thought about writing on my thoughts for the scenario where we constantly go back and forth between under and over 4%. I agree that constant rebalancing via fees, commissions, and bid-ask will kill me in the long term. Why I decided to rebalance here was because I had to rebalance anyways. Per the book, the only time you should rebalance is either every 3 months or when your leverage falls below or exceeds your target range. They recommend a buffer of 0.2x (so for 2x leverage that would be 1.8-2.2x) however, I felt that was too narrow and so expanded it to 1.5x-2.5x. When the market pulled back, I was already on the higher end and this pushed it over the edge, hence the rebalance. If we look at Damodarn's ERP historical report, it illustrates how rare it is to have an ERP <4% which was last shown I think around 2012 (post real estate fall). To comment on the use of LEAPs it is because it is more capital efficient at this time. Leveraged ETFs would be easier, but the opportunity cost favors leaps, but unfortunately, it's more work. I plan to switch to futures once my account hits at least $35,000 because you need at least $25,000 overnight to hold futures products in a ROTH IRA. There was a section in the book that talked about not adjusted based on CAPE (or in this case ERP), but adjustments showed better returns in the long term. Yes you can make the argument that it working before doesn't mean that it will work in the future, but it helps me sleep better at night when I can have a reason to deleverage early in life when stocks are at all time highs haha. I believe in diversification. Within my trading account, I have been building both long and short positioning within markets stretching from grain commodities to crypto. I am planning to get into the real estate market as well, not because I think it's a better place to put your money, but I see an opportunity to rent out some of the units in a fast rent growing area (so this is more speculative, but this property in particular had some good numbers). It also adds to the benefit of diversification, but at my age I do think I should be mostly in stocks. However in your cause I don't know much about using uncorrelated assets to get more leverage unless you're talking about the access into SPAN margin. I think there is definitely a cause to diversify outside the US, but the options of internation funds typically don't go out more than 2 years so having leverage in international equities seems to pose a challenge from what I can see. I will look into Rob Carvers and the rational reminder forum. I haven't heard of these, thank you for the suggestions!

D74248

Historically 10 and 15 year returns in the US market have been dismal when starting with CAPE over 30 — it is currently 40. Along that line, the major brokerage firms have been warning that US valuations are high and recommending a larger international allocation. So your plan is in line with the thoughts of people who do this for a living. It won’t be in line with this sub, which is a meeting place for *The Church of VOO and Chill*” It took QQQ **16 years** to recover from the last tech bubble.

D74248

> I’m 45, been a financial advisor for years. And you are telling a 77 year old to put money in the S&P 500 when CAPE is over 40? Incredible.

SpellAccomplished541

First, don't take financial advice from me! See my post above. Also, I am now retired and have lower risk tolerance. That being said, CAPE has never been this high since the dot com bubble so the market price is high and expects perfection. Last week even beating all estimates wasn't enough for NVDIA. What I mean by priced for perfection is that the market will continue as long as every company meets beats earnings perfectly, but if the don't then they could take a bigger hit than they should. Also... they say everything is priced into the market... if so then that means the rate cuts and QE are already priced in because the market assumes those things will happen because they are likely. Again... don't take financial advice from me... I'm just a regular person who posted here to say that I wish I used ETF's instead of following the advice of 'financial expert'

SpellAccomplished541

Thanks. That's why I'm posting while the market is at high CAPE again. I hope to steer more young people toward r/boggle.

Lucky_Platypus341

If everyone agreed on valuation, the market would be there already. Markets are emotional and you're sensing the disconnect between fundamentals (CAPE, recession) vs current valuations. No one can tell you whether today's close is the highest it will be for the next two years or the lowest (likely in-between, lol). Vanguard and most other analysts seem to believe fundamentals will catch up to the market and returns over the next decade will be much lower. That may or may not be the case. All that really matters is what YOU think and what YOUR risk tolerance is. If you go all in and it drops 50% over the next couple years (OrangetheFruit's 'downward bleed') how will you feel? If you go 60% bond and the market returns 20% next year, how will you feel? Which situation is more tolerable to YOU? You have a long time horizon. If you decide to go heavy equities and figure it only matters where it is in 30yrs, that's reasonable. If you decide to hedge your bets and see where things go over the next few years, that's reasonable, too. You can listen to Vanguard. You can listen to us reddit randos. Ultimately, it's your money and decision.

Sharp_Attitude6358

Schiller's CAPE?

Cracked_Tendies

>and we are now in a much larger bubble than the DotCom one, combo AI/crypto/Real Estate/Gold bubble Hey, you forgot pokemon cards! >we are near all time highs in CAPE ratio, worst possible bet to make now would be Triple Leverage ETF, just wait it out in QQQ or better yet cash, then when down 50-75% then buy TQQQ Man, ifkr. Investing is the only life sector where people love a ripoff and hate a bargain. In all actuality, it's likely going to be another 10-15 years before TQQQ is even remotely a good idea

Aggressive-Donkey-10

15 years is not long term how did it do from 2000-2010? Oh, that's right, not one levered fund traded then as they kept going broke during their simulations. we are near all time highs in CAPE ratio, worst possible bet to make now would be Triple Leverage ETF, just wait it out in QQQ or better yet cash, then when down 50-75% then buy TQQQ , QQQ dropped 83% in 2000-2002, and we are now in a much larger bubble than the DotCom one, combo AI/crypto/Real Estate/Gold bubble

throwaway3113151

Have you checked out the CAPE ratio recently?

Krammsy

I don't see how this isn't the early start of a bear market. Mass layoff's both public and private, tariffs (Google Smoot-Hawley if you're not sure what tariffs can do), a president openly displaying the demeanor & ethics of a mob boss. Beyond that, Warren Buffet's recent rationalization for going cash, that this market isn't for buy and hold for the next ten years, or, Google a chart of the CAPE index.

Equal_Calligrapher_3

1) stock market is disconnected from the economy 2) market trajectory today doesn’t fit definition of a crash 3) awareness of market concentration, Buffet index, CAPE Ratio, and highest ever valuation metrics has been reaching outside of finance professionals

Lucky_Platypus341

Yep. It often moves in opposition to the S&P. Today it was up while the market was down. If tech crashes (handful of tech rep 40% of S&P atm), people will still flock to Costco (gotta eat), so it's a bit of a hedge. It almost doubled last year, so not surprising it's meh this one -- down 2.5% YTD but offers pretty good dividends (0.6%) given how high valuations are right now in general (CAPE). t's a good company with a good (ethical and profitable) business model and a lot of cash on hand, so not likely to fail if the economy bits a major bump. FWIW they've said they're not interested in stock splits because modern trading allows fractional shares so there's not really a point. You kinda lucked out on the cost basis, so the question is if there's someplace other than Costco you'd rather have $9k rn.

SPQR0027

That's good stuff, thanks. With the Buffett Indicator at 215% when the mean is 85%; CAPE breaking 40 when the mean is 17; Indexes vs M2 Supply 50% higher than should be... I want these indexes cut in half!

Stunning_Practice9

I’m not looking for a dramatic single day crash, I’m fine laddering down. When the CAPE ratios come back down to earth, I’ll start buying again. But yeah, in the meantime, getting a 4 figure interest payment every month is more than good enough. I’m rich but I live in a lower middle class area. People are struggling, this economy is dogshit. I think investors are figuring this out…

ok_read702

I wouldn't say it's useless. https://bestinterest.blog/wp-content/uploads/2022/04/10-year-annualized-CAPE-1536x876.png Valuation is a weak form of gravity. But it's still gravity.

unbalancedcheckbook

The CAPE ratio is at very high levels and peaks like that strongly correlate with crashes soon after. It happened in 1929, and happened in 1999.

unbalancedcheckbook

CAPE ratio is at 1999 levels...

Plate_Expensive

Stocks are priced for perfection, though the last few weeks let out some pressure. Stocks have had an insane multi year run, every asset is inflated, CAPE really can’t go any higher for long. Private equity is the first domino to fall then the major institutions whom need to fund endowments/redemptions will start pulling money from the market and there will be few to no buyers at these levels. It will be a quick gap down as always.

D74248

And it is not just Vanguard cautioning about 10 year returns. Historically 10 year returns starting with CAPE over 30 have been dismal. CAPE is at 39.

Old_Ape_General

The current Shiller CAPE is about 40 which is only second to the dot com bubble So… we gotta pump those numbers up Calls at open

VotedOut

Agree on some things, disagree on others. Just TSLA and PLTR over-valued - disagree: I might edit this post later to list stocks that gone up hundreds/thousands of percent trading in single or double-digit billions in market cap that burn money and have just a small number of employees. I haven't saved the tickers to my memory so I'll have to find them again. Crypto - Strongly disagree: Nobody in the real world is using Bitcoin or crypto. And it's just worthless nothingness that can be generated with a few lines of computer code that serves no purpose and doesn't do anything better than what already exists in "traditional finance". That shit ain't worth trillions of dollars of market cap. It's no better than paying trillions of dollars in market cap for handfuls of dirt in the ground. JPMorgan and Blackrock are only "embracing it" so they can collect fees from crypto-bros who want to gamble on crypto without having to buy coins directly from a shady exchange. Pretty much every single pro-crypto talking point [has been debunked](https://www.reddit.com/r/CryptoReality/wiki/talkingpoints/) for a while now. Gold - disagree My point was that the rise in price of Gold has far exceeded actual inflation... unless I missed something where we've had 100% inflation in just two years (we haven't). Here's the [inflation-adjusted gold price](https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart), higher than it has ever been in history (including the 70s/80s inflation fears era). VIX and the Fear & Greed Index - Sure I'll kind of agree on that one. But a couple things: It spent all of May-September in Greed. Also, the C[NN Fear & Greed index](https://www.cnn.com/markets/fear-and-greed) hasn't made much sense to me lately (maybe I'm just not reading it right). It says Put/Call ratio is 0.67, but says that it's "Extreme Fear". But usually 0.67 indicates "Greed", and CNN's explanation of the indicator only seems to reinforce that. Waiting for OpenAI to IPO before crash - Sure I'll give you that that is something that's "missing" in order to have the perfect A+++ setup for a market topping. But will that A+++ setup happen? OpenAI themselves have stated they don't expect to be profitable until like 2030 at the earliest. Also: I find it odd that the combo of CAPE Ratio, Buffett Indicator, and Mean Reversion being 2-standard deviations over-valued gets brushed off by almost everyone I bring it up to, and I see very few people talking about it. However, it has been an accurate signal in predicting a crash EVERY SINGLE TIME SO FAR thus far in history, with no false positive (like... it's literally measuring how absurdly stretched market prices are getting). And the fact that most people are unaware of it, ignore it, or continue to brush it off makes me think that the likelihood of it being an accurate signal again is pretty high.

VotedOut

CAPE Ratio, Buffett Indicator, and Mean Reversion are 2 standard deviations over-valued compared to historical trend. That is objectively euphoric, regardless of the commenting you see online. Many stock prices are objectively at euphoric prices. Sure, I'll see posts and discussions about "bubble or not". But then I look at the daily thread and other places and it's mostly just throw-away comments of "we go up" idiots who can't even throw more than one sentence together. I mean, you could be right that the bubble will get crazier from here. But then you'd need to argue that CAPE Ratio, Buffett Indicator, and Mean Reversion will get much crazier than they have historically ever been before the market snaps. Market bubbles generally burst months (or even years) in advance before the earnings data and economic data/cycle plateaus or goes south. Earnings growth and economic data often looks good and "in the clear" at the top of a market bubble. Many of the hot stocks are already baking in like 5-10 years of uninterrupted growth in advance right now. And there's many flashing warning signs if you're paying attention: Dog-shit money losing stocks with near-zero revenues have been getting pumped like crazy this year just for saying the words "AI, blockchain, hyper-scaler, data center, quantum computing, space rockets" or whatever other bullshit. PLTR at $440B market cap is over 100x price-to-sales ratio is the most expensive mega-cap in history. TSLA at $1.4T has no growth and has been propped up on Elon's bullshit grifting. The market cap of Gold has doubled in just 2 years from $14T to [$28T](https://companiesmarketcap.com/gold/marketcap/), far out-pacing inflation. Crypto (with it's multi-trillion dollar "market cap") has been the biggest scam bubble for years now that has been propped up by stable-coin printing, Microstrategy buying, and other financial chicanery non-sense. Right now though, with the broken technicals on the crypto charts and MSTR, as well as the apparent "pause" in stable-coin printing... it is looking like the collapse of the crypto house of cards may now \*potentially\* be happening. And if crypto collapses, I think it will spill over some into weakness in the rest of the market.

VotedOut

No, no, no, no. You're repeating common myths here. When CAPE ratio, Buffett Indicator, and Mean Reversion are all this extreme, it has historically been the END of a bull-run, not the middle. For every person like me that is skeptical, there many more that have your attitude that the bull runs has much further to go. The crap that gets parroted here that "a crash doesn't happen until every single last skeptic has thrown in the towel and bought in" is bullshit. There will ALWAYS be a decent chunk of skeptics, even at the tippy-top. "Usually it happens when we least expect it". Well, there's plenty of people with their heads in the sands that aren't expecting it anytime soon like you. And I think there's a "silent majority" of investors that aren't even really paying attention to what is being said on financial media, WSB, or other stock forums. All that said, my broken crystal ball agrees a small bit with you in the sense that I think the market may have another "fake-out crash" before the real crash happens just to fake-out and trap the crowd of people saying "bubble" like me.

Entraprenure

OP, you are completely wrong. I don’t know where you got your stats from, but PE ratios are historically VERY high right now. A CAPE ratio (Shiller PE ratios) of anything over 25 is considered “bubble territory”. The market’s cape ratio is above 25 about 10% of the time. 1999 and 2021 are examples of when the CAPE ratio was greater than 25. The current CAPE ratio is 38.4. This is the second highest CAPE ratio we have seen in history, the only time it has ever been higher was during the dot com bubble peak (44). The current PE ratios are greater than 1929. We are ABSOLUTELY in bubble territory. The S&P500 is currently trading almost 2.5x greater than fair value, the only question is if AI will actually cause the fundamentals to catch up. Also, reverse repos (institutions parking their money with the fed) are at historical lows, which indicates a severe restriction of liquidity in the market.

VotedOut

Your comments in this thread are a bubble indicator to me: * Large six-figure positions in UPRO an TQQQ when the S&P 500 valuation measures by CAPE ratio, Buffett Indicator, and Mean Reversion metrics are all at 1929/2000/2021 levels [(2 standard deviations above historical trend](http://currentmarketvaluation.com), which were all bubbles in the past that preceded crashes). Valuation-wise, there is almost no denying that the market is in a bubble. * "Not even Trump attempting to nuke the entire economy could bring it down 25%." A 25% market drawdown wouldn't even come close to bringing the market valuation down to the historical average line. It could go down much further than that. * A 50% market drawdown will be a killer for anyone who just went all-in lump sum any time semi-recently. A 50% market drawdown is definitely plausible when the market is this over-valued. And with so many more degenerates crowding into call options, leveraged ETFS, meme bubble stocks (crypto, NVDA, TSLA, PLTR), and going in big on every single dip/rip more than ever, that 25-50% market drawdown will be more like a 90%+ drawdown for most degenerates in reality. * You say that so many people are waiting for a crash as a buying opportunity that it's going to immediately be over-purchased and money will get pumped. But then in a follow-up comment you offer up evidence that too many people have already piled in already (Retail going from 10% of total equities trading volume in 2010 to approximately 25% by 2021, with recent estimates at 30% and 37% of daily trading volume). * Faulty logic: "We'll continue toward the moon because we have no where else to go." Here's where else we could possibly go: DOWN. * Famous last words: "And I fully believe we can't even crash anymore."

JacquesHome

There are two markets right now: S&P490 and the top 10 companies. The S&P490 is fairly valued. Most the CAPE P/E is being driven by the top 10 (NVIDIA, ORCL, etc). The problem is that if the top 10 + OpenAI and some other privates misstep, it brings down the whole shebang.

Elibroftw

The stock market is still poised to return more than 10 year treasury yields according to TR CAPE.  https://blog.elijahlopez.ca/posts/gold-vs-sp500-returns/

No-Block-2095

Schiller CAPE comes with an assumption that business has been somewhat steady, with some up & down smoothed over ten yrs. Look at the profits 10, 9, 8,… yrs ago of MSFT, Meta, Goog, NVDA, AMZN etc. They make massively more profits now not because of where we are in a business cycle but because they grew their business. - cloud computing in 2016 wasn’t that big. - Youtube revenue was 36B jn 2024 and 5.5B in 2015. Another reason valuations are different: Dominant companies today are tech and they sell sw and ads. Nvidia and Apple are fabless and use someone else factories. Marginal cost of selling more is minimal so they can scale up faster. Dominant corp in the past needed a lot more assets to generate profits. A sw company will get a higher valuation than a railroad or brick& mortar.

LSUTigers34_

This is still disproved by the fact that the CAPE ratio hasn’t steadily increased over time for the sp500. More and more information has been available for market participants since the buttonwood agreement but the CAPE ratio has not gradually risen during that time period. You’re relying on a time period that’s coincident with a gradual decrease in interest rates since 1981, which is evidence that higher valuations on the cape ratio in the past 40-45 years have been driven by a decrease in interest rates, and not more information in the market, although there is correlation there simply by virtue of the fact that information availability increases over time.

TheDeHymenizer

>Your example suggests that the market is overvalued and not efficiently priced, otherwise there would still be more PE deals. No. It would suggest the past was undervalued. A healthy market isn't one where a small group of people are going around liquidating companies. And naturally speaking these would always be bidded into not being profitable anymore in a world where it does happen. So if we were both 1980's corporate raiders looking for these we would both be bidding the price up until it no longer exists. IE the market was undervalued then not overvalued now (in regards to this example). >our argument also can’t account for 2008-09 when stocks were woefully underpriced despite similar levels of information. It similarly cannot account for the 2010 flash crash. The fact is that the market has boomed and busted for centuries and the CAPE ratio is decent at spotting an extremely overvalued market. This cycle has continued despite more and more efficiency of information. Lol liquidity events are a thing and if an example of 1980's corporate raiding happening in the modern era happened - I'd imagine they'd of been purchased during those windows. While the market wasn't being efficiently priced.

LSUTigers34_

Your example suggests that the market is overvalued and not efficiently priced, otherwise there would still be more PE deals. Moreover your example can’t control for interest rates as a factor. Your argument also can’t account for 2008-09 when stocks were woefully underpriced despite similar levels of information. It similarly cannot account for the 2010 flash crash. The fact is that the market has boomed and busted for centuries and the CAPE ratio is decent at spotting an extremely overvalued market. This cycle has continued despite more and more efficiency of information.

LSUTigers34_

Your example suggests that the market is overvalued and not efficiently priced, otherwise there would still be more PE deals. Moreover your example can’t control for interest rates as a factor. Your argument also can’t account for 2008-09 when stocks were woefully underpriced despite similar levels of information. It similarly cannot account for the 2010 flash crash. The fact is that the market has boomed and busted for centuries and the CAPE ratio is decent at spotting an extremely overvalued market. This cycle has continued despite more and more efficiency of information.

Leading_World_3813

The Shiller PE dipped is a smart caution, not overhype, since CAPE over 35 has historically delivered just 3-5% annualized returns over the next decade. I don't think the 10-year average is obsolete for AI. It's essential in filtering out the noise from Mag7 capex surges to reveal if growth is a marathon or mirage. Hyperscalers are tracking a gobbling 60% of operating cash flow and already juicing GDP by 1.1%. Enterprise adoption is still low and ROI gaps widening, we'll need meaningful profits soon or we get reversion. The actual earnings are a sturdier shield than Dot Com vaporware. The internet sparks post-bubble, AI sustainability is still a coin flip.

Efficient-Impact-328

As a pessimist, I think that the reason CAPE is near dotcom levels while TTM PE is lower is largely because today's market speculation is concentrated in private companies (e.g., OpenAI, Anthropic), which are excluded from the S&P 500's earnings calculation, thus artificially inflating the index's current TTM earnings.

Flimsy_Roll6083

Equities today are expensive, but the growth per dollar of investment is also higher than it has ever been. The corporate IRR on investment in new technology is high, so reinvested earnings will have a geometrically progressive effect on future earnings. The comparison to the dot-com era is without basis. While the CAPE ratio today is approaching levels seen during the dot-com bubble, the underlying conditions are materially different. In 1999, a significant portion of equity valuations rested on companies with little or no EBITDA and business models that were untested. Today, although P/E ratios are elevated, the market is driven by companies with substantial revenue, strong EBITDA, robust free cash flow, and well-understood monetized technologies. The high CAPE today reflects expensive future earnings, but not the kind of speculative, pre-profit optimism that characterized the dot-com era.

Inevitable-Log3515

The CAPE ratio is now above 40, second only to the dot-com era, and way past the historical average of 15. Big names (like Nvidia and other tech giants) are making up a massive chunk of the market, with valuations that look wild compared to actual profits. Even some big investors are warning we could see a 30-40% correction in AI names, and lots of personal finance folks are waving red flags. Still, bubbles can last longer than anyone expects, and sometimes they don’t “pop” so much as just deflate and drift lower over time. If you’re buy and hold (like me), just keep your cool, nobody can really time these things. But it’s pretty clear that valuations are off the charts and there’s a lot of euphoria, so some caution is definitely warranted

Particular-Way-8669

CAPE has well known limitations one of which is the fact that if you experience high inflation in given 10 year period it gets completely fucked. Forward PE is much better metric and it is more than reasonable.

m0nsieurp

CAPE ratio at 40 and stock market to GDP at 230%. We can pretend all is well, valuations don't matter anymore and stock prices can go to infinity. But eventually reality sets in, one way or another.

slakmehl

> This is paid by existing earnings elsewhere. Then they aren't earnings. Which will push CAPE even higher. Note that CAPE should never, ever be this high for any reason. It is the single best predictor of future stock market returns known to man, and at the moment predicts negative real returns for the next decade. Unless there is indeed a productivity boom that so far is not in the data, we're in for some rough seas.

Inside-Kick5597

The cyclically adjusted P/E ratio (CAPE) is a good metric to look at to quantify this. The S&P500 is currently at 40, median if 16, mean is 17, max of 44 (Dotcom). https://www.multpl.com/shiller-pe

Double_Suggestion385

That argument oversimplifies what Shiller’s data actually shows. The long-term exponential growth of stock prices isn’t some kind of law of nature, it’s the result of specific historical conditions like productivity gains, population growth, inflation, and changing interest rates. Treating that log-linear trend as fair value assumes all those forces remain constant indefinitely, which they don’t. Shiller himself doesn’t argue that markets always mean-revert to a smooth exponential path. His CAPE ratio work shows that valuations can stay far above or below historical averages for long periods, and that long-term returns tend to be lower when valuations are high. In other words, reversion to the mean happens, but the mean itself shifts with fundamentals like profit margins, discount rates, and tax policy. Calling every deviation a minor fluctuation ignores how major structural changes like postwar growth, globalization, or today’s low-capital business models can change the slope of that trend entirely. Over sufficient time, inflation and compounding make almost anything look like a straight line on a log scale.

VotedOut

The point is that it was never this extremely over-valued during all those other years (CAPE ratio, Buffet Indicator, and Mean Reversions all 2 standard deviations strongly over-valued). But whenever it was this extremely over-valued (1929, 2000, 2021... a crash or bear market always soon followed).

Weak-Pomegranate-435

CAPE: Irrelevant metric F&G Index: Relevant but is a contrarian indicator

VotedOut

But... the CAPE ratio, Buffett Indicator, and Mean Reversion for S&P 500 are all over 2 standard deviations over-valued above historical trend ([Source 1](https://www.currentmarketvaluation.com/), [Source 2](https://www.multpl.com/)) And historically, every time that has been the case (1929, 2000, 2021), there has been a crash or bear market. So... what to do?

C0II1n

What does the shiller CAPE ratio fall to if you remove NVDA, PLTR, and other bloated stocks

goober2341

I find it insane how many people casually ignore the CAPE ratio being at 40. Yes, it's generally difficult to time the market, but that doesn't mean you should switch off your brain and treat the market as some sort of mythical black box which us retail mortals can never understand. Sometimes it's pretty obvious that the market is grossly overvalued and you're better off just staying in cash or looking at non-US assets.

Lucky_Platypus341

If you threw a dart at the timeline blindfolded, then time traveled to that time 2 out of 3 times you'd be some amount better off going lump sum instead of DCA -- however 1 out of 3 times you wouldn't. We don't know where we are on the timeline -- will things keep going up or will they correct or will they crash? No one can say when any of these will happen. Ofc that doesn't mean we have to ignore that we are years into a long bull run, CAPE is high, there's signs some sectors are already in a recession, credit card debt is very high, consumer spending is dropping, gov't is shutdown, and AI companies are circular funding. We STILL don't know what's going to happen, especially in the short term -- we could keep going up -- but if there was ever a time to DCA over 1-2 years, this would probably be it. Either way, you'll most likely be higher in 20 years. The questions is can you handle seeing a 50% or more drop in value in the short term? How about if you "miss out" on a 20% upside over the next 3mo?

Longjumping-Leg5583

I don't really try to time or game the market. I just hold steady with my long-term strategy, weathering the correction of market valuation. For market valuation, I do keep an eye on the Schiller CAPE. For recession risk, I created a Recession Predictor app: [https://recession-predictor.replit.app](https://recession-predictor.replit.app/) Let me know if you find it helpful and intuitive.

Longjumping-Leg5583

The "tech/AI bubble" concern is based on the Schiller CAPE data, which shows a current market valuation nearly as high as that right before the 2008 financial crisis. I created a Recession Predictor app: [https://recession-predictor.replit.app](https://recession-predictor.replit.app/) It utilized three indicators analogized to weather forecasting. Let me know if you find it helpful and intuitive.

Longjumping-Leg5583

So, you're asking about two things here: \- Market Valuation \- Recession Risk In terms of market valuation, equity (stocks) are at the highest P:E ratio since right before the 2008 financial crisis (Perplexity search: Schiller CAPE). In terms of recession risk, I created a Recession Predictor app: [https://recession-predictor.replit.app](https://recession-predictor.replit.app/) Let me know if you find it helpful and intuitive.

MrAkimoto

Trying to figure out if the market is in a bubble is a waste of time. You can gather all the metrics you want and don't forget to toss in some technical analysis to make this vat of shit complete. Then try to make some analysis of it. To further confuse things we have all these market gurus one after another appearing on Bloomberg and elsewhere giving their market views which for some reason all sound pretty similar. What is known is we are in a roaring bull market and "investors" are excited about this new technology called Ai. They are throwing a wall of money at it. In fact, they just can't seem to shovel it in fast enough. Does this sound like any kind of rational investing? Charlie Munger would roll over in his grave, and Warren doesn't seem too impressed being he is in 360B of T-bills. All the metrics like the Buffet ratio CAPE ratio, various market PEs are closing in on all time highs. A famous investors once said if you can't explain why you should buy a stock in 5 minutes, don't buy it. I can't explain why anyone would want to invest in Ai, and I can't imagine a single way it'll benefit me. What I see is a bunch of fools running around, greedy individuals and technology giants, convincing themselves they have discover the goose that lays the golden eggs. My investment philosophy is to be fearful when other are greedy and VV. Every bull market has a top which will be followed by a correction. I don't know how long or deep it'll be. I also believe in simple investment eschewing complicated strategies such as options, short sales, or other complicated BS that seems favored by so many so-called smart people. I know a bargain when I see it, and I know from past experience my patience will reward me.

greenpride32

From a data perspective, most "bubblers"are referring to Shiller/CAPE index which is the long term PE ratio of the SP500, and it currently does sit near all time highs. The "AI narrative" is because the largest weights in said SP500 are heavily invested in the area. The entire circular money argument is nonsense. When company A exchanges an asset of value (cash, equity) to company B for a good or service, that is a legitimate economic transaction. If B then transacts with A, that's an entirely separate activity. Nobody is giving away anything for free. What's different if A goes to B and and B goes to A, versus A goes to B and B goes to C? It just means C got a win over A - not that this is "real" and other was "fake". Let's suppose AMZN contracts out to UPS to help with package delivery. And then separately, UPS decides to use AMZN AWS to host their web service and compute infrastructure. Is this fake/circular money? I'm fairly certain most will agree it is not. UPS could have instead gone to MSFT Azure to get another party involved. So it's not different than my prior A/B/C examples. Nothing unusual or out of the ordinary. AI "loop" is simply because a) big tech are the ones driving AI buildout b) big tech has the funds to do so c) AI/GPU hyperscaler is just the next interation of CPU/cloud hyperscaler. Makes perfect sense to me, just as AMZN can go to UPS and FDX for delivery. They aren't going to UBER or LFYT or COKE (distributor for KO). It's called synergy - it can be both inter-business or intra-business.

circadiggmigration

That's not the P/E ratio. It's an offshoot of it to paint the narrative he's advancing. It's called CAPE, you can google it.

Cloudboy9001

Perhaps they'll all prove true and your idea window is too short. The PE10 (CAPE) of the SP500 is \~39 atm which is \~2x higher than the long-term average.

milkplantation

I'm so bored of these takes. The Buffet Indicator and the Shiller CAPE hasn't lost relevancy in 2005. Neither of these indicators mean a crash is imminent, it means lower returns in the decade ahead because of higher valuations now. When many valuation gauges agree (CAPE, Buffet, Price to Sales, Hindenburg Omen, LPPL) then it's fair to treat them as a long-run return thermometer. None of them are timing tools. They can look "irrelevant" for years, but they're all saying the same thing: Prices are high, the market is overvalued, so you're likely to earn low single digit real returns for the S&P over the next decade.

Ok_Courage_2870

Was the Shiller CAPE ratio 41 then?

Atlas-Scrubbed

The one issue I had with that data is that is did not go back very far. Even still, it did have some massive shifts in CAPE for some industries- but not others. And that was just over 5 years if I remember correctly.

Aggravating-Salad441

The average CAPE is useless unless you specify dates. Given the earnings efficiency of software companies and current corporate tax rates, it doesn't make sense to include the distant past in the average. I tend to only look at 2014+ since that's when all the Mag7 began to hit their stride and it removes the immediate aftermath of the GFC. Somewhere in the ballpark of 25x would be reasonable. Also, CAPE is based on a 10-year average. The lowest values in the current calculation were in the first half of 2016. That means even if the market moves sideways into the middle of 2026, the CAPE will still rise as the lowest values roll off the calculation.

slakmehl

Correction: if you sold the last time CAPE was in the high 30s (2021), and then bought back in when it collapsed to the high 20s, you would have gotten a massive bonus bull run over what everyone else did. I did it, it was great!

pinsandsuch

Shiller CAPE. We’re approaching g our all-time high.

throwaway3113151

Sailing to all time CAPE highs almost ensuring negative return over the next 10 years

D74248

CAPE is over 41, with a historical median of 16. Even if you give some credit for CAPE not reflecting 1990s changes in accounting rules and stock buy backs, and apply a generous 5 point adjustment, a broad 50% correction would seem to be a reasonable possibility. Other valuations are similarly inflated. The one that really sticks out to me is earnings yield, which is down to 3.13%. And I don't see how earnings can grow into these valuations. For that to happen AI has to really deliver, and smarter people than me seem to have done the math and find that the electrical infrastructure just is not there -- and is not going to be there.

MarkusEF

I don’t disagree there’s a massive bubble, but CAPE aka 10-year P/E is artificially inflated due to 2020 lockdowns. With modern central bankers trying to play god and do away with natural business cycles, the presence of even 1 “recession” in a 10-year window skews the numbers a lot.

LiberalAspergers

The CAPE is getting pretty.close to dotcom levels. Ive been moving to solid producers with clear valuations and business models. RIO is my biggest position.

Guy_PCS

This market is not even approaching the Dot,com valuations. During the peak of the dot-com bubble, the average price-to-earnings (P/E) ratio for the seven biggest tech companies was 276x, and the median was 120x, with the S&P 500's cyclically adjusted P/E (CAPE) peaking at 44x. Today's P/E valuations are high but generally lower, with the S&P 500's P/E around 28 and the CAPE ratio around 40. Current valuations are supported by stronger fundamentals among profitable mega-cap tech companies, whereas the dot-com bubble was fueled by speculation on often-unprofitable startups.

slakmehl

> people could be saying the same thing 3 years later Extremely unlikely. In 2022 CAPE was at 28. Very high historically (right about where it was before the 1929 crash), but maybe justifiable given the globalization of the economy and marginal costs of that globalization. CAPE is now at 41. It has never been this high other than the dotcom bubble. We are either about to see a _massive_ AI productivity boom (thus far nowhere to be found), or look out below. https://www.multpl.com/shiller-pe

m0nsieurp

Keep telling yourself stories as to why the market is out of whack and way overvalued whilst I'll keep my eyes on the CAPE ratio which is a battle and time tested indicator.

m0nsieurp

"Cyclically adjusted" means the last 10 year inflation is taken into account. With the CAPE ratio, one can compare two different dates, even if they're a century apart, with no issues whatsoever. That's the point of this indicator. The market can remain irrational as long as it wants. I'll just stay clear of it until valuations come back to sane levels.

m0nsieurp

SP500 CAPE ratio registers at 41 today. We're 3 points away from the peak of the dot com bubble. https://www.multpl.com/shiller-pe It's fine, right?

LiberalAspergers

Mostly left the US market back then. Moved my 401(k) from VTI to VXUS. No regrets, doing very well. Still staying out of the broad US market until the CAPE is below 20.

D74248

All that and you advocate an aggressive allocation for someone with an investment horizon that is ill defined? With CAPE over 40 and valuations overall at levels not seen since March, 2000?

Western_Name4224

Except we're not in the equivalent of October 1998 - we're at the tail end of one of the largest and longest bull supercycles ever. No one knows where exactly we are in that (I'd posit somewhere around February 2000 in the historical example), but we do know exactly what the current CAPE of over 40 means based on 100+ years of history. Over the next 10 years, the most likely average outcome is an annualized return of somewhere around -1%. While this could mean a lost decade of single digit positive and negative returns, a more likely outcome is a big crash followed by an eventual recovery to more less where you were by the end of the decade. Does that mean you'll win by buying puts tomorrow? Likely not, protection is expensive and no one knows exactly how long things will continue like this or what will trigger a crash and when, but the longer it goes on, the more likely it is, and the worse it'll be when it does happen. https://preview.redd.it/718oirkcjnxf1.png?width=790&format=png&auto=webp&s=b0859a75157bab107c435e91ffd391da67710712

D74248

They don’t understand the concept of valuation — and they don’t want to. CAPE is now over 40, but pointing that out gets down votes like you are getting.

D74248

Now look at the long term graphs for *valuations*. 10 and 15 year returns starting when CAPE is over 30 have been dismal. As I type CAPE is is at 40.58.

zeppo_shemp

if the majority of S&P 500 stocks report earnings beats, that doesn't change the fact that the S&P 500 is also at a CAPE ratio of ~40 which indicates extremely high odds of below average returns in the next 1o to 12 years.

VotedOut

This is the most cynically-driven stock market bubble in history. It's not even driven by optimism, euphoria, or sentiment any more.... It's just a combination of dirty tricks like: * out-in-the-open market manipulation/gamification and insider trading * extremely over-valued assets with busted/debunked stories about future growth (like TSLA and BTC) that just keep getting pumped back * crypto grifts, illicit Tether & Circle "stablecoin" printing, and MSTR shenanigans * large/mega-cap stocks trading at insane price-to-sales ratio (like PLTR at 120x P/S) * Zero revenue meme trash companies with no business models being pumped (like quantum computing stocks, OKLO, ASTS) * Over-valued IPO junk doing its thing (like CRWV and CRCL) * General frauds and similar trash (like CVNA and DJT) * Chip stocks in a cyclical boom sky-rocketing acting like they'll never have a cyclical bust (like NVDA) * circular deals among big tech companies that add no value to consumer society (such as NVidia-Oracle-OpenAI) * an AI hype spending spree that has negative ROI * price of gold doubling in less than 2 years from its previous high * inflation under-reporting (that doesn't include asset prices that have been hyper-inflating in the past few years) * more rate cuts to fuel the bubble even further... * Good news = buy all dips and rips, Bad news = buy all dips and rips, No news = by all dips and rips * and on and on and on... All that for a market that is [over 2 standard deviations above historical trend valuations](https://www.currentmarketvaluation.com/) by CAPE Ratio, Buffett Indicator, and Mean Reversion (which only last happened in 1999-2000, and more recently in 2021). It's a deadly combination of the crazy insane tech stock valuations of the 1999-2000 dot-com bubble (that caused the dot-com crash in 2000-2003) combined with the "financial engineering" chicanery (that caused the 2007-2009 Great Recession).

Ok-South-9597

You're not projecting what will happen from an average point in time though, you're measuring from a market peak. Pull up any chart with a similar P/S, CAPE etc, such as 1929 or 2000, tell me what happened in the following 1-2 decades, especially after inflation. When you're in a situation that doesn't resemble the average, you don't get to expect average results. I suggest you also pull up a market index for Germany 1930 or Russia 2000 and see what happens to stockmarkets when countries slide towards authoritarianism.

Mundane-Fan-1545

Those numbers mean nothing by themself. As I said many times, what matters are financials. Both P/E ratio and CAPE ratio are useless metrics when used by itself. Stop using these ratios. A company with a high P/E can easily dip to oblivion. Current Ratio is a much better number to look at than the P/E ratio.

D74248

For the S&P 500: P/E is at 31. Median is 15. CAPE is at 40. Median is 16 Earnings yield is 3.2%. Median 6.64%. But maybe this time is different.

InclinationCompass

Fair enough enough about the CAPE ratio and valuations being elevated. As for AI, yea it seems like a market buzzword every company uses these days. But since AI implementation in enterprise settings started 1-3 years ago, we're actually seeing many companies seeing tangible returns while consistently beating earnings. Walmart for example: their Gen-AI search is already driving real results. E-commerce sales grew about 22% YOY and the company specifically credited its AI search rollout as a key factor. Their AR/AI features have seen a 10x increase in customer adoption, improving conversion rates and cutting return rates. That's real ROI. And it’s not just Walmart. Analysts estimate AI could deliver over $900B in annual economic benefit for the S&P 500 firms by 2026. So clearly, not "everyone" thinks we're in a bubble. Tech earnings growth this year alone is around 15% with profit margins well above historical averages. Microsoft, Nvidia and Amazon are all reporting tangible productivity and revenue gains tied to AI infrastructure/automation. False hype exists but lumping everything into "bubble" territory ignores the real efficiency and earnings boost AI is already producing in its infancy stage. We're likely on track for major productivity gains over the next few years. These things don't happen during bubbles (and yes, that includes the Dot Com bubble). This looks a lot more like a bull market built on innovation than a bubble.