CAPE

keith1301

You would be correct if the earnings expectations come in as forecasted. History says it almost never happens in these scenarios. The US market sits at a CAPE of about 41. The record says the multiple will probably — on the order of two-in-three — fall back below 25 within three years, and that when expensive markets correct, the normal size of the fall is about 40% in real terms. The odds are a flat per-year hazard, not something that rises the longer the market stays expensive, so the evidence supports a likelihood, not a date. How often expensive markets correct, and how fast. Across 21 countries from 1975 to 2022, there are 52 country-years where the five-year P/E was 30 or higher. From those starts the market was back below 25 within one year about 25% of the time, within two years about 50%, within three years about 70%. The rest took longer; Japan's two episodes ran seven years each. We are in year 9.

phybere

It's because CAPE is widely seen as a predictor. https://www.multpl.com/shiller-pe We are near record CAPE, even if the absolute P/E isn't as high.

Serial_acquirer

CAPE of S&P and the like (also world index) is high because it just happens that highest value stocks happen to be mega cap techs and they effect the indexes. S&P is expensive =/= stocks on average are expensive (well at least if you dont use market cap weighing)

Foreign-Exchange7324

i hear the fear, but the CAPE doesn’t trigger a crash on a precisely set day – the 10‑year lag means the market could still be in a run before it reverts, so a sharp pullback might feel delayed rather than immediate.

Crentstocks

CAPE has said "overvalued" since 2017, so it's a bad timing signal. The part that bugs me more is that at CAPE 41 the earnings yield is \~2.4%, while the 10-year pays \~5.3%. Stocks are paying half what risk-free bonds do. That doesn't have to mean a crash next month, but it does mean lower returns ahead. Trimming into strength rather than going all cash. Just my thoughts

Dbestinvest

Shiller CAPE and Buffet Indicator are all I need to know, my cash is safe

milkplantation

A forward PEG of 0.7 only looks cheap if today's extraordinary earnings growth are sustainable. Factset forecasts 32.4% earnings growth for 2026, but estimates for 2027 are closer to 15%. The PEG look artificially attractive which is why markets aren't screaming right now. Then consider the broader picture: * Shiller CAPE is nearly 42, approaching its dot com peak * 5 and 10 year treasury yields are around 5.0% and 5.3%, near multi decade highs * Markets are pricing in another 25 basis point fed hike in December * The S&P 500 is more concentrated than during the dot com bubble, with its top 10 holdings representing nearly 38% of the index * IPO proceeds have surged and some blockbuster listings are approaching * Market breadth has eroded in a major way with the average S&P 500 stock actually already in a bear phase, down more than 20 per cent from the highs * On the point of breadth, the median stock is down 17 per cent. As recently as Friday, there was not one member of the S&P 500 at a new 52 week high, but 204 companies, or over 40 per cent of the index, are more than 20 per cent below their highs Of course, none of this guarantees a correction, but declaring the market "significantly undervalued" based on one forward looking metric seems very optimistic, especially when so much earnings growth depends upon ongoing AI investment. Lastly, everyone jumps and lurches at anyone expressing caution on here but only 27.1% of retail investors are bearish on stocks. You need to go back to Liberation Day to find the last time that there were more bears than bulls. That's a warning sign and of itself.

SpongEWorTHiebOb

From 9-1-2022 to 6-1-2023 the CAPE was below 30. Low of 27.08 on 10-1-2022.

One-Cat4639

i get the CAPE scare, but just a quick nuance: the ratio has a blind spot on the exploding tech sector that dominates the S&P now. that means it can stay high even while earnings are solid. so the 40% rule is a bit over‑cautious. that said, if you’re feeling uneasy, adding a small cash or bond pile can smooth a swing without dumping all equity. it’s not about selling your AMC if you’re a fan, it’s about not letting the panic dent your long‑term ride.

Double_Suggestion385

CAPE lol

The_Macro_Investor

So let me get this straight: -CAPE ratio is in the 40’s, highest it’s been since the dot-com bust.  Bers are nonplussed. -Buffet indicator is at 220, showing massive overvalue (normal is 80). Big yawn. -Iranian war, two straits closed, gas at all time highs.  Nope, nada, zilch. -Bond yields spiking, debt becoming more expensive, inflation unchecked.  Crickets. But a possible plague incident where one person dies, and everyone here loses their minds? If this actually crashes the markets I’m going to laugh SO HARD.

PlanetCosmoX

**The discussion around an impending economic downturn or a stock market "everything bubble" centers on specific macroeconomic and valuation metrics.** While traditional data like Gross Domestic Product (GDP) continues to show steady growth (around 2%), critics argue that current asset pricing has drifted heavily from economic realities. \[1, 2, 3\] Below are the primary technical indicators used by analysts to argue that the U.S. economy faces hidden recessionary friction, alongside specific valuation tools pointing toward a historic market bubble. **1. Indicators of Hidden Recessionary Friction** While the U.S. has not officially entered a technical recession (traditionally marked by two consecutive quarters of negative GDP growth), specific leading indicators track underlying economic weakness. \[4\] **The Sahm Rule Volatility:** The [Sahm Rule Recession Indicator](https://fred.stlouisfed.org/series/SAHMREALTIME) triggers when the 3-month moving average of the unemployment rate rises 0.50 percentage points above its 12-month low. While it spiked earlier, it sits around **-0.07% to 0.00% as of late 2026**. However, the newer **Scavette-O’Trakoun-Sahm-style (SOS) Indicator**—which tracks *insured* unemployment claims—continues to signal caution regarding labor market deceleration. \[4, 5, 6, 7\] **Corporate Credit Spreads & Debt Roll-Over:** Private corporate debt has reached record levels. Because interest rates remain elevated, companies can no longer easily roll over expiring debt into cheap new loans. Rising default rates in private credit signal that the restrictive monetary environment is squeezing businesses from the bottom up.\[2, 8\] **Vanishing Equity Risk Premium:** The extra return investors expect for holding stocks over safe government bonds has completely flattened or turned negative. This structural imbalance indicates that investors are taking on extreme equity risks without receiving the historic "safety premium" over risk-free U.S. Treasuries. \[1\] **2. Indicators of Market Overvaluation & "Bubble" Territory** When analyzing whether the stock market is experiencing a speculative bubble (specifically driven by the Artificial Intelligence and technology arms race), macro-valuation metrics have reached levels seen only once or twice in modern history. \[2, 9\] **The Shiller CAPE Ratio (Price-to-Earnings):** Developed by Robert Shiller, the Cyclically Adjusted Price-to-Earnings (CAPE) ratio measures today's stock prices against 10 years of inflation-adjusted corporate earnings. The S&P 500 Shiller CAPE ratio sits at roughly **41x**. This is more than double its historical average of 17x. In 145 years of data, it has only been higher once: at the absolute peak of the **1999 dot-com bubble** (44.2x). **The Buffett Indicator (Market Cap to GDP):** Warren Buffett’s preferred macro-valuation model divides the entire value of the U.S. stock market by annualized GDP. It currently reads at an astonishing **237% to 244%**. Historically, a reading between 70% and 90% represents fair value. The current level is about 2.6 standard deviations above its long-term trend line, indicating extreme historical overvaluation. **Skyrocketing Margin Debt:** Speculative bubbles are funded by leverage. Total FINRA margin debt (money borrowed by investors against their portfolios to buy more stock) surged to **$1.1 trillion**, making up a highly volatile slice of total S&P 500 market value. Highly leveraged markets are highly sensitive to sudden downward shocks. **Capex Concentration Risk:** A core fundamental metric of a bubble is capital expenditure concentration. Historically, massive "hyperscaler" tech companies spent 4 to 5 cents of every dollar on infrastructure capital expenditures. Today, that capital expenditure has accelerated to **40 cents per dollar**. If the monetized Return on Investment (ROI) of the AI infrastructure expansion fails to match Wall Street's lofty expectations, it threatens to trigger a sharp contraction across the tech sector. \[1, 2, 10, 11, 12, 13, 14, 15, 16, 17, 18\] **Core Technical Comparison** **Valuation Indicator** **Historical Norm / Fair Value** **Late 2026 Reading** **Historical Precedent** **Shiller CAPE Ratio** \~17x **\~41x** Exceeded only by the Dot-Com Peak (44.2x) **Buffett Indicator** 70% – 90% **237% – 244%** All-time historic record high **FINRA Margin Debt** Modest relative to cap **$1.1 Trillion** Record high funding speculative leverage Are you trying to evaluate these signals to **rebalance a retirement portfolio**, or are you looking to use these indicators for short-term **options/shorting strategies**? Let me know so we can model the right risk framework. \[1\] [https://thehub.ca](https://thehub.ca/2026/05/29/the-everything-bubble-a-twice-in-145-year-valuation-peak-with-no-place-to-hide/) \[2\] [https://www.reddit.com](https://www.reddit.com/r/stocks/comments/1wzdr0a/why_do_people_keep_spouting_its_a_bubble_when/) \[3\] [https://www.morningstar.com](https://www.morningstar.com/business/insights/blog/leading-recession-indicators) \[4\] [https://www.td.com](https://www.td.com/ca/en/investing/direct-investing/articles/recession-indicators) \[5\] [https://fred.stlouisfed.org](https://fred.stlouisfed.org/series/SAHMREALTIME) \[6\] [https://www.richmondfed.org](https://www.richmondfed.org/research/national_economy/sos_recession_indicator) \[7\] [https://tradingeconomics.com](https://tradingeconomics.com/united-states/real-time-sahm-rule-recession-indicator-fed-data.html) \[8\] [https://www.theglobeandmail.com](https://www.theglobeandmail.com/investing/markets/markets-news/motley/3809532/history-says-these-3-warning-signs-precede-major-stock-market-crashes-all-3-are-flashing-red-right-now/) \[9\] [https://www.theglobeandmail.com](https://www.theglobeandmail.com/investing/markets/stocks/JPM/pressreleases/4868726/the-market-just-hit-a-risky-milestone-history-says-investors-should-make-this-1-move/) \[10\] [https://www.currentmarketvaluation.com](https://www.currentmarketvaluation.com/models/buffett-indicator.php) \[11\] [https://fortune.com](https://fortune.com/2026/04/19/what-is-the-buffett-indicator-stock-market-crash-overvalued/) \[12\] [https://www.gurufocus.com](https://www.gurufocus.com/stock-market-valuations.php) \[13\] [https://www.chamberlinfinancial.com](https://www.chamberlinfinancial.com/blog/the-shiller-cape-ratio-what-it-means-and-why-its-flashing-red-in-2026) \[14\] [https://finance.yahoo.com](https://finance.yahoo.com/markets/article/this-stock-market-indicator-just-flashed-a-warning-not-seen-since-the-dot-com-bubble-165540336.html) \[15\] [https://ca.finance.yahoo.com](https://ca.finance.yahoo.com/news/look-key-signs-stock-market-162133841.html) \[16\] [https://ca.finance.yahoo.com](https://ca.finance.yahoo.com/news/p-500-just-flashed-rare-141000531.html) \[17\] [https://threestreamsfinancial.com](https://threestreamsfinancial.com/shiller-cape-ratio-elevated/) \[18\] [https://www.theglobeandmail.com](https://www.theglobeandmail.com/investing/markets/markets-news/motley/4899831/will-the-stock-market-crash-history-gives-a-95-reason-to-stay-calm/)

iforgotitagin

Losing 40% in 10 years when inflation for the decade was almost 30% could actually be considered as losing more than 50% of an item's "value". Ignoring inflation in a value calculation is even a bigger error than ignoring dividends in many cases.. That being said losing that much is not a likely outcome going forward. However given CAPE ratios averaging more than 2% real gains over the next 10 years is also not likely.

keith1301

At this point I think you should wait. I don't care what anyone says, history and the math say bad times are ahead. Read below. The US market sits at a CAPE of about 41. The record says the multiple will probably — on the order of two-in-three — fall back below 25 within three years, and that when expensive markets correct, the normal size of the fall is about 40% in real terms. The odds are a flat per-year hazard, not something that rises the longer the market stays expensive, so the evidence supports a likelihood, not a date. **How often expensive markets correct, and how fast.** Across 21 countries from 1975 to 2022, there are 52 country-years where the five-year P/E was 30 or higher. From those starts the market was back below 25 within one year about 25% of the time, within two years about 50%, within three years about 70%. The rest took longer; Japan's two episodes ran seven years each. The median episode above 30 lasted two years. **Duration doesn't change the odds.** Split those same 52 starts by how long the episode had already run. Starts in year four or later ended within 1/2/3 years at about 30/50/70% — the same as starts in year one. The US has been above CAPE 30 almost continuously since 2017, longer than every episode on record except Japan's pair. That makes it an outlier in duration, but the data gives no reason to think it's more likely to end this year than any other year. **How big the fall is.** In Shiller's US data, there are 91 months with CAPE at or above 30 and five years of history after them — essentially 1929, 1997–2001 and 2020–21. From those months the median worst real drawdown within five years was −40%, the bad quartile −47%. Real prices fell 3.7% a year over the next three years and 5.2% a year over five; 79% of five-year windows ended lower in real terms. Real earnings fell about 6% a year through those windows — the multiple didn't come down because earnings grew into it, it came down with earnings falling. At today's level specifically, CAPE 35 and above, the US has one completed episode, 1998–2001: a −43% drawdown, real EPS down 15% a year for three years, negative five-year real returns from every start month. One episode is an analog, not a base rate. **The arithmetic says the same thing on its own.** CAPE 41 to 25 is a 39% fall in the multiple at flat earnings. In the international episodes the P/E fell 13–15% a year for three years, which from 41 lands at 25–27. International timing, US drawdown size, and the pure multiple math all land in the same neighbourhood. That's why the figure is 40%-ish. **What tends to come with it.** In US de-ratings from expensive starts, the multiple fell with earnings (correlation +0.64 with real earnings growth over the window), not with rates — when the 10Y rose more than 50 bp the multiple actually went up. 2022 is the exception that proves it: rates up 400 bp, CAPE 38 to 27, earnings held, fully recovered in 18 months. A low starting dividend yield made outcomes worse (today's 1.2% is near the bottom of the record), as did a blow-off run in the prior three years (2023–26 qualifies). Credit booms were the crisis channel abroad; US bank credit to GDP has been flat since 2020, the one favourable reading. **What the number is not.** The 70% measures "P/E back below 25," not "a 40% drawdown" — earnings growing into the multiple is a theoretical exit with no US precedent at this level. The −40% is a within-five-year figure paired with a three-year horizon, so the strict three-year number is a bit shallower. The 52 country-years are mostly one 1998–2001 bubble seen across many markets, so the independent sample is closer to a dozen episodes — 70% means likely, not a calibrated probability. And the implied equity risk premium disagrees with CAPE: expensive against its own history, not against bonds at 5.3%. A long grind that still edges bonds is the other way this resolves.

beerion

>The problem is that M2 is itself a response to market conditions, so normalizing earnings by a measure that moves with them can smooth out real price pressure rather than real earnings growth. Hmm, so you're saying that I have the cause / effect backwards? The market going up causes M2 to go up? That's interesting, and I've never seen that claim before. ***Any resources on the mechanics there?*** I suppose that, as asset prices go up, banks lend more, which causes money supply to increase? The counter, I think would be something like covid era money printing. That was money created by the government and dumped into the system. I feel like it's hard to make that cause / effect claim in this case. >Plus the tax‑cut adjustment only pushes the average up for a few years before it wears off, so the "better" metric ends up looking a lot like the old one at the current date. Worth trying but probably no better predictive power than classic CAPE. I'll push back, here. You're right that the impact on the metric diminishes with time. But, having the adjusted metric in 2018 would have been very handy for go-forward expectations - by the end of 2018, you're looking at a Shiller of 28x vs an adjusted 23x...that's an 80 bp boost to earnings yields (which has big effects on things like ECY)

Antique-Sea-5953

Nice to see the chart, and I get the M2 angle. The problem is that M2 is itself a response to market conditions, so normalizing earnings by a measure that moves with them can smooth out real price pressure rather than real earnings growth. Plus the tax‑cut adjustment only pushes the average up for a few years before it wears off, so the "better" metric ends up looking a lot like the old one at the current date. Worth trying but probably no better predictive power than classic CAPE.

Witty-Gur-6577

i like the tweak, but i keep nagging that M2 is just a tongue‑twister of monetary policy. when the Fed prints more cash and the supply jumps, earnings get a free ride too, so dividing by M2 is like pulling the same wheel twice. in short, the adjusted CAPE may look nicer but it still ends up doing what the legacy one does – calling out high prices – plus it might hide the fact that the very thing that moved the ratio up (policy‑driven liquidity) is also what’s fueling the run‑up in earnings. still, kudos for flagging the bug.

Artistic-Gain-155

neither liquidity twists nor tax cuts set a permanent floor. the spurious up‑trend still hangs over a market that can't survive a shock, so the adjusted CAPE is still a red flag.

beerion

>the other thing i'd think about is mix. the s&p today is way more software and chips than in 2000 or 1980, and those businesses run much fatter margins. some of the "high cape" is just the index being made of different kinds of companies. I see this argument made often. At the end of the day, earnings are earnings. Margins matter, but they don't really mean *that* much. I could see paying a slight premium for higher margins, but not enough to drive a 10x CAPE (in 1980) to 40x. And any premium paid comes out on the back end in the form of lower returns...which we haven't seen yet. >the m2 part i'm less sold on. I feel much better using M2 as the normalizer than inflation. In addition to the linked graph in the body of the post, I've written this in the past which may help sway you: >Using some measure of liquidity answers the question of just *“how much”* money is available for companies to hoover up. Thinking anecdotally, if I were to give *Joe Six-Pack* twice as much money as he had yesterday, he’s likely to spend that difference (or at least some proportion of it), which will show up in a tangible way on corporate bottom lines…***This is true whether a case of beer goes up in price or not.*** More money equals more spending, which equals more revenue and earnings available to companies. And thanks for the feedback. Hope I was able to add something to the equation.

hugh2018

Nope. I don’t understand why people feel comfortable slinging opinions that are completely divorced from facts. Over any full 10-year (decade) holding period, the S&P 500 has never lost >50% of its total value. The worst 10-year rolling total return in modern history occurred during the Great Depression (ending mid-1939), where the index declined roughly -40% in total (about -5% annualized). During the "Lost Decade" (2000–2009), the total return of the S&P 500 was roughly -9% to -10% cumulatively (about -1% annualized). The S&P 500 has experienced peak-to-trough crashes exceeding 50% *within* a cycle—such as the dot-com bust (-49%) and the 2007–2009 Great Financial Crisis (-57%). However, having an interim drawdown during a crash is very different from ending a 10-year span down more than 50%. Historically, elevated starting valuations (e.g., high Shiller CAPE ratios, forward P/E above historical averages) correlate strongly with lower expected forward 10-year returns or stretches of near-zero real returns (as seen starting in 1929, 1968, or 2000). However, predicting that high valuations make a** **\>50% loss over a full decade "quite elevated" is unsupported by historical base rates, since a >50% 10-year loss has never happened in the history of the index.

MimsyWereTheBorogove

nobody in here talking about commercial default rates and commercial refinance windows. It's literally right there for you to see if you open your eyes. 13.8% default rate and growing (all time high) commercial mortgage is 10 years max which means they are currently going from 3% to 7%+ (2017 vs now) But what does this have to do with me? who owns those buildings? where do they get the money to make up the difference? What does this do to the price of already distressed commercial property values? A rug pull is imminent, and the funny part is... most of you think that the people who will bear the brunt is the overvalued AI companies? They are hoarding cash waiting for the opportunity to buy back cheaper. Just like all the big names on wall street are doing. Do you know who cant do that? Who has caps on their cash withdrawls? (401ks, annuities and pensions) How much of the market is made up by those? The american worker wont be able to cash up because they have no control. They lose. The professionals who have cashed up, are already out and into Treasurys and value trades. But why is the CAPE ratio still so high if all the big money is out. PLTR $70 (Maybe less, maybe sub-$50)

Sharp_Spray_9102

Take a look at the historical 10 year performance of stocks starting with CAPE over 30.  CAPE is currently 41. And the the bond market is larger than the stock market, so clearly a lot of people are indeed buying them.

harrison_wintergreen

CAPE ratio of 41

harrison_wintergreen

As a crude rule of thumb, when CAPE ratio gets over 30-35, it's likely the market will underperform 10-year Treasuries. This is pretty well established and not too controversial in the finance industry. It's why Vanguard and some of the other big brokerages in the last few years have recommended people consider boosting their bond allocation, even when younger. If US stocks average 3-4%/year until 2035-ish and bonds average 5-6% for the same period, you might want more bonds than stocks. This type of thing happened 2000-2012, and some other periods of time as well. But there's a major difference between forecasting out 10-15 years, and 30 years.

GlobalVillage30

Yes I think you are right re equity share and inflation income. They also say a prolonged slump impacts success of 4% rule (not really a surprise) but it is something you need to ensure your portfolio or lifestyle can happen, especially with the current CAPE and near 30 year high bond yields requiring earnings to be higher to cover the higher discount rate. Personally, I think bonds are becoming very attractive for retiree income but at same time want a big equity pillar as I get more into retirement to beat inflation.

Primary-Comb-5457

genius 25 year old "quant" hasn't been hurt enough to understand value. Everything so easy when CAPE is at 40, come back at 7.

adler1959

No because they do not move in the same ratio. It is called Shiller PE ratio or CAPE ratio

milkplantation

I disagree with this assessment. The fact that a bubble is widely discussed doesn't prevent it from becoming larger or make it less vulnerable to a correction. Alan Greenspan made his famous warning about “*irrational exuberance”* in 1996. The market didn't crash until 2000. So recognizing that valuations are stretched and knowing when they will correct are completely different things. An obviously there are objective reasons for concern about the market today that are hard to ignore. The ten largest companies now represent roughly 39% of the SP 500, compared with about 27% at the dot com peak. The shiller CAPE is around 41 versus roughly 44× around the 2000 peak. Today's largest companies are generally far more profitable than that period, but we still have a historically expensive and concentrated market. More importantly, a crash doesn't require everyone to collectively decide to sell, as OP suggested. A stocks price is simply the price the next buyer is willing to pay, so if buyers suddenly only want to pay less, the stock price falls even if most shareholders never sell and prices fall until buyers appear. That decline can then trigger margin calls, leveraged positions unwinding, redemptions and algorithmic selling, making the decline self sustaining. All it takes is some change in expectations for the profitability of a business like poor earnings, excess capacity, higher rates, etc. and investors decide that today's prices no longer make sense.

schmellthat

Congrats on the successful business. On the concentration risk, have you put much thought into the macro environment you’re holding it through? For example, CAPE ratio at 41X, pretty much unprecedented, meaning that this time would have to really be “different” in order for your highly priced holdings to maintain compounding growth. I’m I understanding right that you have set an 8 year investment horizon, and hope to 4X your portfolio? That’s definitionally a gamble, in all honesty. I would really encourage you to do a lot of reading on risk management (especially sequence of returns risk) and security valuation. If that’s not for you, than maybe consider an index, bond, and potentially gold split, sized relevant to your horizon

jretzy

I'm going to say maybe. If you were older for sure. If you do you might want to do it in a few tranches in case yields keep going up. With rates rising there is going to be a damper on growth. AI capex is about half the current growth in the US market right now. If that starts to slow down next year and higher rates drag on the market the market is likely not going to be a good of a risk adjusted investment with the current CAPE ratio. 10 year is as long as I am going and TIPS is what i prefer to lock in real inflation adjusted return. I don't trust the CPI but its better than nothing.

esuvar-awesome

I’m thinking the same. The equity premium at this point for the current CAPE ratios don’t make sense for the risk in equities.

VotedOut

The market going up is NOT a rational response - let's not kid ourselves. Valuations right now are worse than they were during the 2000 dot-com bubble or 1929 pre Great Depression levels. [Buffett Indicator](https://imgur.com/a/BN6YMMW), [CAPE Ratio](https://imgur.com/a/n2mgyzE), [S&P 500 relative to Interest Rates](https://imgur.com/a/iuWdq6y), and [Mean Reversion Model](https://imgur.com/a/CK1fuK1)

VotedOut

Which means a 20-40% correction can happen anytime now, because most people still don't think it's possible to happen anytime soon - even given the dot-com bubble level fundamental setup for it. [Buffett Indicator](https://imgur.com/a/BN6YMMW), [CAPE Ratio](https://imgur.com/a/n2mgyzE), [S&P 500 relative to Interest Rates](https://imgur.com/a/iuWdq6y), and [Mean Reversion Model](https://imgur.com/a/CK1fuK1)

PurpleToedUnicorn

Considering social security and Medicare is supposed to run out of money during the next presidential term, and not a single elected leader is doing anything about it....while the government is $40 trillion in debt and the Treasury Secretary is now using the equivalent of the government credit card to pay off the long side of the curve with the short end...and foreign central banks are buying bullion instead of Treasuries...and we have an unfunded war running hundreds of billions in the red (that we are losing, causing a rethinking of petrodollar recycling in the region)...and the CAPE index is something like 40 while yields in all developed countries are soaring in unison...and we are being led by a wholly incompetent cabinet of grifters and sycophants beholden to the highest bidder...and the Crack spread is soaring while energy pricing for fossil fuels remains erratic (and the same incompetent government gutted all alternative energy investment... I would say, yes.

Krammsy

None. I went from selling options against long term holdings to daytrading as of March. Atop the CAPE index, furiously irresponsible fiscal policies and the normalization of market manipulation (Large Friday at-the-bell large option purchases followed by weekend tariff announcements, foreign invasions) I decided sleep wasn't that over rated. We have the dumbest and most arrogant, sociopathic morons running this show who can't see a month ahead, you don't know when the government might turn around and do something hideously stupid that wrecks a stock you're in, or shatters the global economy to afford themselves an insider opportunity. .

SMW_Pilot

Agree the hike itself is old news. A 25bp move on the front end doesn't change anyone's capex math. A 10 year with a 5 handle does, and it got there before the Fed said a word. That's the number I'd watch Wednesday, not the decision. The dovish-hike squeeze is real but it's a one day trade. The thing that doesn't squeeze back is the hurdle rate on the whole AI buildout. I keep a scorecard of the old valuation dials (CAPE around 40, market cap to GDP way above trend) and the only other times they sat here were 2000 and late 2021. Both times the market shrugged off the first hikes too, right up until it didn't. Same book as you, long with hedges. If the dots say pause and semis rip, I'd rather sell into that than chase it.

Fluffy_Bunch9357

Summer of 2007 vs. now. Markets- The S&P 500 was near record highs in summer 2007 with a Shiller CAPE of 26.2. It reached another record in August 2026 with the CAPE around 41 to 42. Jobs- The initial August 2007 report showed 4,000 jobs lost and 4.6% unemployment; the latest report showed 23,000 jobs lost in July 2026, 4.1% unemployment, and another 103,000 jobs were removed from May and June. Inflation and Fed- CPI was 2.4% in July 2007 and the Fed rate was 5.25% shortly before the first cut. CPI is now 3.4%, rates are 3.50% to 3.75%, plus three Fed officials wanted a hike, and Warsh just said the Fed still has work to do on inflation. Consumer Sentiment- Michigan sentiment was 83.4 in August 2007 compared with 51.7 now. Federal: The 2007 deficit was 1.2% of GDP and publicly held debt was 36.8%. The 2026 projections are 5.8% and 101%, with net interest alone reaching 3.3% of GDP. Oil and War- WTI was about $74 in late August 2007 and the Strategic Petroleum Reserve held 690 million barrels. Late August 2026 had $87 oil and only 287 million barrels in reserve. Prices just went over $100 again and reserves aren’t going up. Credit Risks- The 2007 problem was mortgage debt that was difficult to price, complex marketization structures, over rated by rating agencies. Today, private credit is a $1.4 trillion market, some nontraded funds have capped withdrawals, many of the underlying loans are not priced regularly in public markets, and have been resold in complex deals to other VCs. Investment boom- Housing investment was rolling over in 2007. Today, Microsoft has spent about $145 billion on capex, Alphabet expects to spend $195 billion to $205 billion, OpenAI raised $122 billion at an $852 billion valuation, and Anthropic raised $30 billion at a $380 billion valuation. Because OpenAI and Anthropic are private, their complete expenses, debts and cash flows are not public. Concentration- About ten companies now make up almost 40% of the S&P 500, leaving much of the index dependent on a small group of concentrated companies delivering huge growth that is already priced in. Yes, we clearly do not have the same housing bubble, but that does not mean we don’t have risk. Are losses already sitting inside private credit without being fully marked similar to 07. And does future AI revenue justify this level of debt, spending and valuation? If so, are we pricing in a future where everything has to go almost perfectly? And if AI delivers the productivity needed to justify these valuations, how much of it has to come from cutting labor costs? Lastly, is AI already so important for national security and the economy, is already too big to fail?

music_is_gud

Not really. You need to understand what Shiller CAPE really means. It assumes the average earnings growth of the LAST 10 YEARS will be the same/representative for the next few years (WRONG!) and that a country's GDP is comparable to its stock valuation (AGAIN WRONG!)

music_is_gud

Shiller PE doesn't mean shit in a rapidly growing industry/sub-economy like AI and definitely doesn't make any sense in a globalized stock market. But I don't expect anyone throwing Shiller CAPE randomly to know that

harrison_wintergreen

>I don’t understand why people invest in bonds unless you’re 70 because bonds outperform stocks about 20% of 10-year periods, and for a handful of 20 year periods depending on the type of bonds. https://www.morningstar.com/columns/rekenthaler-report/how-time-horizon-affects-odds-equity-investing Bonds beat the S&P 500 by over 20% a year in 2000, 2001 and 2001. https://www.thebalancemoney.com/stocks-and-bonds-calendar-year-performance-417028 virtually all professionals recommends bonds to reduce volatility in your portfolio, even when younger. this idea "don't add bonds until 5 seconds from retirement" seems to be mainly reddit phenomenon from zoomers who have no sense of history or understanding of stock valuation. it's very much outside the mainstream for investing and finance. CAPE ratio is over 40, which indicates very high odds of overall US market returns being far below average over the next 10-12 years. so if the S&P 500 averages 2%/year from 2026 to 2036, and your bond sleeve averages 4%/year, then the bonds outperformed the US stocks for the next decade. this type of thing has happened many times in the past, and it will happen again eventually. there's a good reason Vanguard has recommended people consider boosting their bond allocation. https://finance.yahoo.com/news/forget-60-40-vanguard-says-000113455.html the market does not care what age you are, or what your retirement schedule is. when CAPE ratio gets over ~35, odds are very high 10-year Treasuries will outperform the US stock market in the next decade.

Mysterious-Entry-357

This is the type of post that keeps us reading. Well done. Historical data and pattern analysis aren't perfect predictors, but it should influence and shape decisions. After all, all our understanding is based on our understanding of the past. CAPE may or may not still be a valid signal, but it's one of the best we have. Rising interest and inflation aren't to be dismissed either. Add concentration risk and energy cost instability. Rarely a better time to DCA.

D74248

The key word is "most". Historically 10 year returns starting when CAPE is over 30 have been very poor. CAPE is currently 41.4. It is also important to consider how bad the bad is. Life is not just about averages. Long tail risk needs to be considered.

tilted0ne

CAPE is a terrible metric for today's landscape...

the_pwnererXx

CAPE is a bad metric too, because inflation numbers are fake. Real inflation is like 3x higher than reported numbers and your chart would look completely different if it represented the actual amount of money being printed and entering the market

SnooTomatoes6354

https://preview.redd.it/4etrwwbb8wnh1.jpeg?width=1179&format=pjpg&auto=webp&s=783853e11663515bb6183555904e35ec50c569ab FW P/E is fake - not based on real results just company budgets which can be misleading. While the CAPE is near 2000 recore highs.

skilliard7

Seems pretty stupid of a move to do when yields are at record highs and spreads between government and corporate bonds are razor thin, and equity valuations relative to CAPE are at the 99% percentile.

Bobatronic

Risk acceptance is mitigated by fundamental analysis on why the consensus view is muted, or wrong. Biotechs, for example, are collectively risky, many companies fail. But finding hidden gem companies with real commercial potential is certainly possible for those willing to do the work. Most investors don’t do the work, can’t do the work. 80% of my holdings are in 3 biotech stocks. I sleep fine. I also don’t care what the CAPE ratio is on the S&P 500, (eg if the market is overvalued or overhyped with AI.). I’m only focused on knowing where my companies are going, what can go right and wrong. Most investors think of biotech as “too hard”. As such, expectations are inherently muted. They are also historically volatile as a group. I use volatility to buy shares in my best ideas on sale. (Selling puts at various strikes to earn premium and also acquire shares.

PotadoLoveGun

Yeah true opinion are different but the data comparison doesnt line up. I am not saying there are no parallels but the financial metrics do not line up. Japan CAPE of over 100 TTM PEs of over 60 Forward PEs in 40-50 range GDP in decline overall Debt to equity ratio avg 1.5 to 2.0, some companies may have been closer to 1 but all were overleveraged Japan has very little natural resources so their portfolio of public companies is slim and still is BTW They companies just didnt grow because of the debt ratios, they aggreaively paid off debt and didnt invest Even now they're debt to gdp ratio is higher, their GDP is 8x lower, and GDP per capital is lower. USA CAPE of 41 TTM PE of 25 Forward PE of 20 GDP is positive even inflation adjusted Our fed is being careful( that all changes if forced them to lower rates) Debt to equity of 1.05 but well below long term average, but this varies by industry big tech giants stay .25 to .75, financial companies run at or above 1 for leverage. Interest coverage is 9.89x so no issues servicing debt Our resources variance and company variance in all sectors is far superior than anything they have ever had. And lastly, the economy is more global. These large us companies make a good portion of revenue internationally not just domestically. For example Meta makes 122B internationally

PotadoLoveGun

Yeah it is high, I do see that so shows overvalued. Good to look at all points of data and consider them. CAPE was over 100 for Japan as well. Ours is like 41 right now, just another data points

PotadoLoveGun

I mean sp500 CAPE is high but it includes 4 slow growth years since it looks back 10. Sp500 earnings growth is real ttm PE is 25, Forward PE is 20. Last 5 years PE was 20-27 so its in range, so asset prices are rising but growth is keeping up I think we could see a CAPE above 2000s tech crash and ttm PEs above 40 if we slash rates right now

WordsHappenedHere

Bears still talk about the Schiller and CAPE ratio like it’s 1988. And they think a 40 year old metric is useful.

xtric8

Its not a bubble because 90% of people think its a bubble. They always use the Shiller p/e CAPE to prove their point. Issue with that is is shiller uses a combination of valuations including 10-year trailing p/e. So todays price over past 10 years earnings. If you use PEG ratio, you get opposite results because of present and future growth expectations. Now, maybe those expectations are too lofty? I don't know but current earnings growths are actually quite high

honkballs

> Since 2015, the CAPE has always been above 30, No it hasn't?

cyphr0n

You need to mention that for the study, the only two time when the CAPE was above 31, was the 1929 crash and the Dot-Com bust era. Two small samples that skew the results. Since 2015, the CAPE has always been above 30, and lump sum within a 5-10 year frame has always beaten DCA.

alphixir

That's worth sitting with — CAPE just above 41 puts today second only to the Dec 1999 peak of 44.2 in data back to 1881, and the other 18 months this high all clustered right before 1999-2000. Doesn't answer lump sum vs DCA for you, but it says the current setup is a genuinely rare valuation regime, not routine background noise.

honkballs

> lump sum investing is the best option statistically. *A 2017 Journal of Financial Planning study split starting CAPE levels into ranges and found that, for its methodology, when starting CAPE was above 18.6, DCA produced a higher average annual return than lump sum; and when CAPE was above 31, every historical observation in its sample favored DCA.* At the moment Global all-country equities: ~31.7 CAPE

DarkwingDucky44

Ok, here you go. I would have found proper sources, but I'm beyond caring at this point. If you don't understand or can't put 2+2 together, nothing will lay it out for you. Hopefully you can start to piece things together eventually though. >U.S. stock market valuations in 2026 share striking parallels with 1929—including high market concentration and speculative retail participation—but modern economic safeguards make a repeat of the Great Depression unlikely. >Valuation and Speculation 1929: The Shiller CAPE (Cyclically Adjusted Price-to-Earnings) ratio peaked around 32.6 amid extreme leverage, where investors often put down only $1 to borrow $10 to buy stocks.2026: The CAPE ratio has climbed past 41, exceeding 1929 levels and trailing only the 1999–2000 dot-com bubble. Speculation is driven by a massive boom in artificial intelligence (AI) and cryptocurrency, alongside expanded private-market access for retail investors. >Market Concentration 1929: A handful of prominent industrial and trust companies dominated the general market narrative before the collapse. 2026: Market leadership is heavily concentrated, with AI-linked mega-cap stocks making up roughly 40% of the S&P 500 market capitalization. >Safeguards and Infrastructure 1929: The financial system lacked robust regulatory infrastructure. There was no Federal Reserve with modern intervention tools, no Securities and Exchange Commission (SEC), and no federal deposit insurance (FDIC) for bank accounts. 2026: Modern interventions—such as Federal Reserve monetary policies, circuit breakers on exchanges, and federal backing of bank deposits—provide structural buffers that did not exist during the Great Depression. >Debt and Economic Backdrop 1929: High corporate and individual leverage unraveled rapidly when liquidity vanished and the banking sector collapsed. 2026: The economy faces record-high sovereign and corporate debt levels (with national debt exceeding 120% of GDP) and a high Buffett Indicator (total market cap to GDP over 200%). However, unemployment remains relatively stable compared to the 1930s collapse. Now you may have noticed those safeguards to prevent a similar outcome to 1929. However Republicans are regularly interfering with these safeguards and seemingly attempting to dismantle them. Such as the FED. And none of this even begins to touch on things like real wages, a massive drop in first time homebuyers and the fact that the only thing propping up the current employment rate is people having to work 2-3 jobs, just to pay their bills. That is not sustainable in any fashion. But sure. Keep drinking that koolaid and pretending that everything is on the up and up.

VotedOut

You left out the extreme overvaluation metrics: [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg)

Deep_Fennel638

163 CAPE

Deep_Fennel638

The current price includes a massive premium (CAPE = 163) based on an assumption of rapidly accelerating growth. If forward estimates stall, suggesting growth is no longer accelerating, that premium should start to shrink.

itsalwayscalls

Putting my reply under top comment because people need to see it. Margin debt is absolutely in line with the historical % of assets at 1.8% In fact it is well below the 3% of assets of 2007. The Shiller pe ratio or CAPE has continuously proven to be invalid due to record profit growth. The past few months we hit a record profit growth percentage ever. We are growing into the PE ratios and it is coming down.

itsalwayscalls

Margin debt is absolutely in line with the historical % of assets at 1.8% In fact is is well below the 3% of assets in 2007. The Shiller pe ratio or CAPE has continuously proven to be invalid due to record profit growth. The past few months we hit a record profit growth percentage ever. Stop with the FUD.

nlutrhk

Looking at the S&P500 CAPE chart here: https://www.gurufocus.com/economic_indicators/56/sp-500-shiller-cape-ratio - Year 2000 it peaked at 43 before the dotcom crash, ok. - 2007 27 before the great recession, ok. - 1987 18 before black Monday. - 2026 Aug (now): 42  - hasn't been below 20 since end of 2009. It doesn't seem to be much of a predictor in recent history with OP's threshold of 30. 

VotedOut

So you just want to ignore history of how these things always tend to play out, when almost all of the warning signs are there once again? This time is different, eh? SpaceX is trading at 76x price-to-sales. ARM is trading at 50x price-to-sales. RKLB and ASTS aren't mega-caps (they're large caps), but they get shilled on social media, and they're trading at 56x and 215x price-to-sales respectively. Crypto has been proven to be nothing but scams over and over again, but Bitcoin is still supposedly worth $1.5 Trillion market cap according to the market. Buffett is not going all-in from what I'm aware of. And he's 95 years old and not running things himself for much longer. And the Buffett Indicator isn't useless when seen in the context of the other charts I linked. It's at an extreme level even with the Buffett Indicator model in the chart I linked assuming exponential growth of the indicator over time, such that we have a "fair" Buffett Indicator value of 50% in 1960, growing to a "fair" \~135% in 2026 (vs. the overvalued 247% it's at right now). I'm going to link those charts again: [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg) [S&P 500 weighting being taken over by the tech sector](https://finviz.com/map?t=sec) It's wild how almost everyone I show these charts to just brushes them off like they're nothing to be concerned about - when I think they're perhaps the main thing to be concerned about. This isn't some "bears have called 20 of the last 2 recessions" bullshit. Valuations being this high (2 standard deviations over-valued, as they were in the dotcom bubble) have actually been a pretty good indicator preceding market crashes and negative returns for the next 5 years (or 10 years, or 20 years). Combine that with qualitative red flags underneath the surface that show that the increasing [escalation of commitment](https://en.wikipedia.org/wiki/Escalation_of_commitment) on AI CapEx spending far exceeding AI revenues is probably not sustainable and probably not going to end well pretty soon. This is one of the worst times in history to FOMO into the market as an index investor, and one of the best times in history to take some chips off the table. But most people are just like "DURR.. I'm not selling until it has already crashed and proven that things have gone to shit."

VotedOut

"Slow and steady" and "extremely cautious" my ass. The S&P500 going up 15-30% per year isn't slow & steady. Clown tech stocks pumping like 100-1000% per 1-2 years or some mega-caps trading at 50-100x price-to-sales ratio isn't slow and steady. The S&P 500 valuation is at dotcom bubble level metrics right now. Perfect growth with no recession for the next few years is priced in to the market, but earnings growth slowdown or recession/depression is not. Here are the charts again (as of June, but they look the same in August now, if not a bit more inflated): [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg) [S&P 500 weighting being taken over by the tech sector](https://finviz.com/map?t=sec) Supply shortage leading to supply glut is a very common pattern that plays out in history. New technology hype sectors pumping and then crashing is also a very common that plays out in history (railroad bubble, electricity bubble the preceded the Great Depression, dotcom bubble of the late 90s, etc.)

Rav_3d

Sure, that's one statistic that is a bit concerning, but earnings growth has been stellar and if that continues, that number will go down even if stock prices stay the same. Also, CAPE is a terrible market timing technique. I'm far more concerned with treasury yields. If they keep rising, that's what has the biggest potential to kill the bull market. But again, we have no idea when bad things are going to happen, even if we're certain they will. The market could go up another 20%, 50%, 100% before the bust. That's why I take my cues from the market. In every bust, the trend slowed for months before finally flipping down. It's possible we're in one of those periods now, time will tell.

VotedOut

This will probably be my last post. I've explained and made my cases, but you're acting like I haven't when I've practically spelled them out for you. Read my other two posts below that I wrote in addition to this (since I couldn't fit my entire long post in one post, and had to separate it into 3). And if necessary, read my previous posts. Much of what you reply is addressed in my posts. I HAVE made my case of why I think infinite compounding growth is not mathematically sustainable once you get to a certain size, and is usually actually harmful. If you disagree, that's fine. I HAVE made the case for why huge mature market-saturated mega-cap companies should have a moral imperative to pay a dividend instead of attempting toxic "growth" that involves accounting tricks, enshittification, and toxicity. I HAVE made the case that enshittification is not just a meme and is a real thing, multiple times. I know some things have gotten better and not everything has been enshittified, but more and more shit is being enshittified as companies get more desperate to find ways to juice their earnings growth in mature saturated markets. I gave you some examples. If you disagree, that's fine. I HAVE made the case that the system would be better under tempered capitalism than the clown hyper-capitalism USA is currently running. Notice I've been emphasizing a distinction between the two. I don't know much about Japan, but it sounds like they're running their capitalism more tempered and reasonably from what you're saying (although their government has a high level of debt if I'm not mistaken). Maybe they learned their lesson after their 1980s bubble & crash to not be so obsessed with Nikkei line-go-up parabolically every year (or maybe not, I don't know). \----- And again, allow me to redirect your attention back to what I personally think is the most important thing to pay attention to at this moment in time as an investor - the fact that we're in a fucking undeniable tech and finance bubble that almost never ends well. (Copying and pasting the 3rd part of my last post here) Perfect growth with no recession for the next few years is priced in to the market, but earnings growth slowdown or recession/depression is not. Here are the charts again (as of June, but they look the same in August now, if not a bit more inflated): [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg) [S&P 500 weighting being taken over by the tech sector](https://finviz.com/map?t=sec) It's wild how almost everyone I show these charts to just brushes them off like they're nothing to be concerned about - when I think they're perhaps the main thing to be concerned about. This isn't some "bears have called 20 of the last 2 recessions" bullshit. Valuations being this high (2 standard deviations over-valued, as they were in the dotcom bubble) have actually been a pretty good indicator preceding market crashes and negative returns for the next 5 years (or 10 years, or 20 years). Combine that with qualitative red flags underneath the surface that show that the increasing [escalation of commitment](https://en.wikipedia.org/wiki/Escalation_of_commitment) on AI CapEx spending far exceeding AI revenues is probably not sustainable and probably not going to end well pretty soon. This is one of the worst times in history to FOMO into the market as an index investor, and one of the best times in history to take some chips off the table. But most people are just like "DURR.. I'm not selling until it has already crashed and proven that things have gone to shit."

VotedOut

With all that said, I'll redirect your attention back to the start of the conversation that I think is the most important thing to pay attention to at this moment in time as an investor - the fact that we're in a fucking undeniable tech and finance bubble that almost never ends well. Perfect growth with no recession for the next few years is priced in to the market, but earnings growth slowdown or recession/depression is not. Here are the charts again (as of June, but they look the same in August now, if not a bit more inflated): [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg) [S&P 500 weighting being taken over by the tech sector](https://finviz.com/map?t=sec) It's wild how almost everyone I show these charts to just brushes them off like they're nothing to be concerned about - when I think they're perhaps the main thing to be concerned about. This isn't some "bears have called 20 of the last 2 recessions" bullshit. Valuations being this high (2 standard deviations over-valued, as they were in the dotcom bubble) have actually been a pretty good indicator preceding market crashes and negative returns for the next 5 years (or 10 years, or 20 years). Combine that with qualitative red flags underneath the surface that show that the increasing [escalation of commitment](https://en.wikipedia.org/wiki/Escalation_of_commitment) on AI CapEx spending far exceeding AI revenues is probably not sustainable and probably not going to end well pretty soon. This is one of the worst times in history to FOMO into the market as an index investor, and one of the best times in history to take some chips off the table. But most people are just like "DURR.. I'm not selling until it has already crashed and proven that things have gone to shit."

Rethaxion

It’s up to you, but interest rates are high and the Shiller CAPE for US stocks is 42. I’m actually considering adding more short duration govt bonds.

Dani_Bolsa

CAPE being back near 1999 levels is at least a signal that long-run forward returns are usually not great from here, even if it is a blunt tool. I wouldnt use it to time a crash, but I would use it to sanity-check position size and not assume the next 10 years will look like the last 10. That's one reason I like 50K Trade for active stuff - if I'm trading around the edges, the Extra Margin up to 1:200 on real stocks and ETFs matters more than pretending the index is cheap because it keeps going up.

antoine1246

Forward P/E now is 20 versus 24.5 peak in 1999. Shiller CAPE peaked at 44.2 in 1999 versus 41.4 in july 2026. That distinction is interesting, it shows that the assumption is that future earnings will be enormously higher than normalized historical earnings. But the most important thing is the macro environment, back then the macro environment was way more forgiving, 4% gdp growth, core inflation at 1.9%, payroll averaged about 230k new jobs a month and hormuz was open. Unemployment was similar though and the fed was hiking interest rates. The economy was booming back then. Now, we have a stagnating economy where investors are inventing enormous future growth. Thats a big bet.

PraetorianFury

This is likely referring to either the Shiller CAPE ratio or the Buffet indicator. The former averages earnings over 10 years and is distorted by COVID. The latter doesn't take tech giants' non-USD earnings into account. There's a ton of speculation going on but during the dotcom bubble you had people paying millions of dollars for companies with no revenue at all. There is no comparison.

DigitalArbitrage

Can you elaborate on what you mean here? CAPE refers to stocks have a high price relative to those companies' net income. K-shaped economy refers to some consumers doing well financiall while are other consumers are not. Those two things don't seem related.

skilliard7

3% after inflation yield on 30 year TIPS is pretty solid when you consider that the CAPE yield on US equities is like 2.5%.

0DTE_Demon

Ignore Shiller CAPE ratio, believe in unprecedented growth?

bulbwiz

Honestly, the rules-based allocation is fine, but the real question is whether those rules actually add value over a simple 75/25 portfolio you rebalance yourself. CAPE timing sounds smart until you realize it can keep you underweight equities for a decade while the market rips higher. If it were me, I'd just buy the underlying ETFs directly and save the fee drag.

Dani_Bolsa

Yeah, I get why that number makes people uncomfortable. I got burned before trying to treat CAPE like a timing tool, and all it really did was make me second-guess good trades while the market kept grinding higher. What I actually use it for is sizing and expectations, not some magic sell signal. If I want more flexibility when things are stretched, that's part of why I've been using 50K Trade - being able to scale positions without needing a huge account makes it easier to stay tactical instead of just sitting there paralyzed.

Downtown_Metal_7837

No, not one single person here uses CAPE to decide how to invest in stocks other than you.

VotedOut

The index funds setup sucks right now (though it still beats buying clown stocks). Perfect growth with no recession for the next few years s priced into market, earnings growth slowdown is not. [CAPE Ratio](https://imgur.com/a/Xvsaos3), [Buffett Indicator](https://i.imgur.com/fN3g97M.jpeg), [Mean Reversion model](https://imgur.com/a/58OwAKs), [Interest Rate model](https://imgur.com/a/iT66lyc), and the [Aggregate Market Value Index Score](https://i.imgur.com/adh7AgO.jpeg) ...And even if you're looking farther than 10 years in the future... climate change and the death of U.S. soft power and (currency reserve status) could possibly be the death of line-go-up infinite compounding growth capitalism as we know it for a while. That all may not come to pass, but the risk of it is definitely being underestimated by the masses who treat buying index funds at any price and retiring rich in 20+ years is a law of nature, when it's actually just a gamble.

Electronic_Sun2127

High CAPE periods can last a long time even while markets keep rising. Would be curious to see how this strategy performed through one of those stretches, since reducing equity exposure could mean missing further upside.

Infamous_Ad8730

CAPE ratio is based on older style economy that was nearly all based on 5-10% margin businesses like car manufacturing, steel and metals, consumer goods, etc. that are the "E" part of CAPE. Todays economy is WAY , way more centered on much higher margin businesses like technology, communications, and information. NVDA's margin is a whopping 75% and MSFT, AAPL, GOOGL and many others are north of 50%. New economy earnings (the "E" again) vs old economy of much lower (WAY lower) margins.

Vivid-Dealer-9088

The standard advice to hold bonds proportional to age (110-age in stocks) made more sense when bonds yielded 5-6% and stocks were at normal valuations. At current CAPE ratios above 40, the math gets messier. Bonds yield decent real returns again post-2022, so the diversification argument is back - but the "sequence of returns risk" framing is probably more useful than rules of thumb. If you're 5 years from retirement and your portfolio drops 40%, can you delay retirement? If yes, you can hold more equities. If no, some fixed income acts as a buffer you can sell instead of stocks at the bottom. The actual question is: what's your ability to absorb bad timing, not what's your age.

alpacaMyToothbrush

Required? No. Advisable? Yeah. CAPE is near all time highs, we're entering into a period with slower growth and higher inflation. That's exactly the sort of Sequence of Returns where safe withdrawal rates are lowest. I recommend you look at [the vpw backtesting spreadsheet](https://www.bogleheads.org/wiki/Variable_percentage_withdrawal) and the mid 1960's stagflation retirement. Or if you want a more recent example, a y2k retiree. Someone retiring in 2000 with a 60/40 portfolio is likely gonna make it 30y, maybe 40.. Someone who was all in stocks is looking much worse. I'm ~ 3y out from retirement. I have a sizable bond tent that I will be unwinding after retirement, but I will probably stay 20-30% bonds. I have definitely missed out on a lot of gains by being conservative over the years, but honestly, I'm crying into my champagne. A good salary and a high savings rate conquers all.

Rdw72777

Exactly. When you look at the CAPE PE of the individual stocks you realize how stupid of a metric it is.

Rdw72777

CAPE is such a terrible metric. It uses 10-year average earnings for Christ’s sake

DuePomegranate

Low CAPE may be a relic of the past, due to accounting changes in the 90s, Quantitative Easing, and mass/automated participation in the stock market especially via index funds.

_176_

> I know the arguments. Margins are higher now, the index looks very different, mega caps actually make a ton of money. So maybe comparing this directly to 1999 isn’t that useful. The main argument is that CAPE uses average earnings over the last 10 years and earnings have grown like 30% YoY for the last decade so CAPE is expected to make no sense. Anyone pushing CAPE is trying to sell you something.

_176_

They're telling you they didn't know the CAPE uses the average earnings of the last 10 years as the denominator and earnings have been growing at an unprecedented rate for the last 10 years so CAPE is basically garbage.

Singularity-42

I never understood the point of CAPE. I mean what is the CAPE for Nvidia? I get it that it is dangerous for the market as a whole, but if we are in a K-shaped economy wouldn't high CAPE be a symptom of that too?

Best-Development-739

CAPE is not an absolute truth. The ratio is comparing earnings of today with earnings over the last 10 years. The composition of the market has changed a lot in those 10 years - much more weight in growth. Earnings growth running at 20% or so now… warrants a higher multiple.

sleezly

Not necessarily true. It depends on the CAPE ratio. When CAPE is low, 100% equities at all times is the optimal approach. https://earlyretirementnow.com/2017/09/20/the-ultimate-guide-to-safe-withdrawal-rates-part-20-more-thoughts-on-equity-glidepaths/comment-page-1/

malignantz

Everyone panicking needs to read this analysis from Karsten Jeske, Ph.D, CFA: [Building a Better CAPE Ratio - Early Retirement Now](https://earlyretirementnow.com/2022/10/05/building-a-better-cape-ratio/) >CAPE has been elevated for such a long time, people wonder if this measure is still relevant. In the comments section, people ask me all the time what kind of adjustments I would perform to “fix” the CAPE. Can we make the Shiller CAPE more comparable over time, to account for different corporate tax environments and stock buybacks and/or dividend payout ratios over the decades? Yes, I will present my ideas here today... So, what do I find? The adjustments certainly lower the CAPE, but don’t get your hopes too high. Even after the adjustments, the CAPE is still a bit elevated today! Let’s take a look at the details…

C0II1n

CAPE during dot com was 44x, and is 42x right now. Historical avg around 17x. So your own logic is against you on that front

Rav_3d

CAPE is noise. Everything but price is noise. It's a bull market.

Think_Reporter_8179

The CAPE has had an upward trend. So CAPE 42 in 1999 was worse than CAPE 42 today. What you need to do is perform a Residual calculation on the CAPE and it's pretty eye opening. The Residual is the deviation from the trend. Essentially if that deviation hits 15, there is typically a downturn within 3-6 months after. https://www.reddit.com/u/Think_Reporter_8179/s/HA8ogkRElp

Far_wide

CAPE has a decent historical correlation to forward returns, that's borne out by the stats. You can say 'this time is different' if you like, but that is what you're doing.

Far_wide

People are talking a lot of crap here. CAPE statistically does have a moderate correlation with forward returns. It cannot predict a crash, but it's absolutely a useful indicator.

Freed4ever

Like most things in finance, CAPE was overfit. It does indicate stressed values, but that is not sufficient for a crash.

iforgotitagin

I think CAPE matters. Unfortunately, it is only easily available for the S&P 500 and slightly less available for major international markets. Because of CAPE I currently have my entire equity portfolio invested in non-S&P 500 US equities and non-US equities. It is tougher to calculate but outside the S&P 500 CAPE ratios are much closer to normal.

AccelerationFinish

> Not saying that means a crash. CAPE has been pretty awful for calling tops and people have been saying stocks are too expensive for years. Then why tf are you posting this