CAPE

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.

Doodsonious22

I described how bubbles end because I assumed that was the point being driven at by the like, seven word sentence I was given. Look, I could point to multiple indicators. The CAPE ratio is approaching highs seen during the Dot com bubble, if you're into that. The S&P 500 is trading at pretty elevated ratios, though yes, not yet at the ratios of the dot com bubble. We've been seeing that weird circular money lending to produce demand (the obvious one is the OpenAI-Oracle-NVIDIA deal) that was a thing we saw during the Dotcom bubble. We've got a lot of smaller companies commanding PE Ratios that are patently absurd just because they threw AI on their name or mumbled something about using it--or in the case of Wal Mart, are just using it to get more investor money thrown at them even though it's not really clear what the use case even is for it. And as for you point on tightening, the Fed tightened rates years ago, but has been loosening rates over the last year, albeit slower than the market would like. And of course, this is all happening while the labor market has been stagnating for years and is now dipping into the negative here and there, which is a weird thing to also be happening in the midst of a bull market. If all this was happening and AI was clearly starting to give the returns these valuations implied, then fair enough, but when companies are almost universally reporting the tech just isn't there yet, you can kinda understand why people might think that a very overvalued stock market that has been driven primarily by a thing that is just not ready for primetime. Which is exactly what the Dot Com bubble was.

Mobile_Wishbone643

CAPE is almost to the dot com level https://preview.redd.it/1zvm5wf7tkwf1.jpeg?width=1179&format=pjpg&auto=webp&s=e07cae6def2a10e4921125bcaf3844606a0ccf94

toughdesigner22

Incredible, I’d not heard the terms CAPE or Shiller before! Thank you!

greenpride32

Just punch some combination of "CAPE" "shiller" "index" "chart" into your search engine and you will find what you seek.

Any_Foundation_661

Not what CAPE says, is it?!

jasperCrow

CAPE ratio ATH, Buffet indicator ATH, Gold going ATH, margin debt ATH. Bols just hoping for one last push up before the rubber meets the road.

m0nsieurp

Hey stop it. You're not supposed to bring up statistics and facts in this sub. SP500 CAPE ratio registers at 40 and Stock to GDP ratio (Warren Buffett indicator) registers at over 200% as we speak. What's the problem dude? Just VOO and chill. In fact, you should go straight for leveraged ETFs: SPXL and TQQQ. Buy as much as you can. Markets can only go up. Liquidity is infinite. SPY at 7000 by the end of the year. If shit hits the fan, the Fed will save investors. I forgot to mention that I also believe in Santa Claus. /s of course

xcrunner2414

Bitcoin is only at a 12% premium above production cost. Gold, on the other hand, is at a premium of 180% above cost. S&P 500 is at a CAPE ratio of 40. Honestly, despite Bitcoin’s massive rise over the last couple of years, it’s still very fairly valued. It’s smack-dab in the middle of the power-law regression high/low curves.

Anxious_Cheetah5589

Foreign developed markets have had a good year after many years of doing nothing. Europe, Japan, Australia, Taiwan, S Korea, Canada, etc. p/e is about 18, 2.75% yield, and it's a good hedge against dollar weakness. Looking at the CAPE ratio, [the United States is significantly more expensive](https://siblisresearch.com/data/cape-ratios-by-country/) than its developed nation counterparts.

jasperCrow

Buffet indicator at ATH, CAPE ratio ATH, Gold going parabolic. $1T in capex investment for $20B in revenue. Tariff trade war intensifying. What goes up must come down.

dingobro1

Wild guess that you are not an engineer at one of these companies that are cloud sourcing all of their data and integrating it with AI. Railroads = faster travel Internet = instant communication AI = instant problem solving One of these compounds on itself exponentially. Internet capped out when everyone gained access. Railroads and transportation? Caps out when networks no longer have room to expand. Instant problem solving? Compounds. We’ve already seen the exponential growth in two years. Compare ai generated video from two years ago to now. Its alrwady nearly indistinguishable from a real video and it is generated INSTANTLY. Now, apply this to engineering…. Tech… research…. This is where we havent seen its true potential yet. Now, many companies are being slow to adopt the tech. My company is just beginning to. Instant problem solving means this thing can literally improve upon itself forever. There is no cap in sight. As it learns more it can improve itself in tandem with it providing more useful tools for us. Sure, the current CAPE is nearing levels akin to some prior bubbles, but those prior bubbles were different and were limited by people, physical features, resources… no limit here. Soon We’re going to see the highest CAPE that our market has ever had. There will be pullbacks but it will be realized.

skilliard7

SP500 CAPE ratio in 2015 - 26.23 SP500 CAPE ratio in 2025 - 39.65 50% of the increase can be attributed to people paying 50% more relative to earnings

D74248

10 year stock market returns when starting with CAPE over 30 have been poor. Often very poor. Right now CAPE is over 39. I would take the magic 7%.

zeppo_shemp

CAPE ratio is ~40 so a major correction and poor returns are highly likely. not every crash needs to connected to 1929, however.

zeppo_shemp

we're not at the bottom right now, the S&P 500 has a CAPE ratio of over 40 which is one of the highest levels in history. when CAPE ratio gets this high, it's usually associated with a crash and very poor returns like in 1929, 1972, and 1999. https://www.multpl.com/shiller-pe we are most assuredly in a bubble, because people keep blindly buying the S&P 500 even though the returns are likely to be very poor in the next 10-15 years. people don't really understand what they're buying, other than "number go up"

Adventurous_Initial6

Today’s market was outrageous — Nasdaq fell 2%. Lol. What about Nasdaq’s nearly 50% rally in 6 months without even the slightest pullback? Thats normal but 2% drop is “panic”? “Everything is discounted”. Despite the fact that CAPE ratio, Buffett indicator, and nearly every macro indicator you can think of is at or near all time highs? “No one looking at fundamentals” At least that part is true. PLTR at 600 PE and TSLA at 250, and Mag7 making up 35% of SP500. It’s all hype, nobody looking at the fundamentals, just like OP said.

VotedOut

**PLTR stock:** Trades near $420B market cap and an insane 125x price-to-sales ratio (P/S ratio), making it the most insanely priced mega-cap stock in history by P/S ratio. PLTR is actually the first and only stock to trade into mega-cap territory (>$200B market cap) AND trade above 100x P/S ratio. Every large/mega-cap stock bubble in history that traded above 100x price-to-sales ratio (or even above 50x P/S ratio) has majorly crashed at least 50% or more. **The market:** For the S&P 500, the valuation trio of CAPE Ratio, Buffett Indicator, and Mean Reversion are ALL 2 standard deviations above historical trend (which only happened in 1999-2000, 2021, and this year now... and probably 1929 too if we go that far back). Major crashes have followed whenever the market has gotten this over-valued. **You** (after the market and PLTR fall a couple percent from their all-time bubble highs): "I think the market and PLTR have bottomed out."

skilliard7

No, but stocks trading at a CAPE ratio higher than 40 is not a sale. We're above the cape RATIO before the great depression(31.5) and nearly at the cape RATIO before the tech bubble pop/lost decade(44). For the sp500 to trade at its historical CAPE ratio range of 16-18, it would need to drop by 50%.

Apart-Consequence881

40 CAPE Shiller PE Ratio is the new 20.

Flimsy_Roll6083

Small caps are cheap. You are buying a stream of future earnings, that’s it (unless you’re buying a controlling stake), so look at P/e ratio PEG ratios, expected growth, CAPE. The future earnings of non-tech small caps are underpriced right now at about 12x, compared to mega and large caps at 25-40x or higher. U have to factor in that earnings growth is unknowable, but mega and large caps earnings generally grow faster, so future earnings of those entities command a higher price, but typically not 3x the price if small caps earnings generally earnings. Having said all that, the stock market reaches new highs, on average, 20 times per year. Think about it - over time, the value of companies and commodities goes up, both in real and nominal terms, this is not new or surprising. Historically, in hot bull markets there might be 50+ new highs in a year, there have only been like 33 this year so far

Shivinger

Not even close? The shiller CAPE is 40.32 (44.19 in dotcom). This means current valuations are about 91% of the dot-com peak. Buffet indicator. US stock market capitalization as a percentage of GDP. It reached around 140-150% at the dot-com peak. Current valuations are about 155% of the bubble peak. S&P 500 Forward P/E Ratio. Current forward P/E is approximately 25 (as of late 2025). This puts today’s valuations at about 96% of the dot-com peak (dotcom was 26). P/E Ratios P/E ratios for the Nasdaq 100 exceeding 70 and individual tech stocks over 200. Current valuations are only 56% of dotcom levels. So one could argue we are close to the dotcom peak. But it’s still some way to go. But at this pace it should not take too long.

kiwimancy

You have probably heard that market timing is evil, whereas the thing you want to do seems like a good and reasonable financial decision, so surely it's not market timing. But your question is focused on how the broad market will perform and how to adjust your market exposure in anticipation. That is the definition of market timing. Market timing is not necessarily evil, but you need a large edge to justify reducing your market exposure and miss out on the market risk premium. I think valuation measures like Shiller CAPE (I think that's the one you meant, Case-Shiller is for home prices) and market allocation to equity tend to be overfit and not reliable for market timing. They also have a feedback problem: if they are wrong, they will tend to double down rather than correcting over time. They are worryingly elevated relative to historical values, and bonds have decent yields right now, so I would not be all that surprised if stocks underperformed bonds in the coming year or so. But personally, I am not prepared to bet on that. As for Q4 in particular, I have no view.

Adventurous_Initial6

The decline of the USD (using DXY as the metric) is often stated as a reason for the boom (which it is), but it’s still a relatively minor one. It has lost 10% YTD, but in the past year, it’s down only 4% the past year. And since the past 2 decades have been relatively bullish, it’s still higher than it was throughout most of 2005-2020. Meanwhile, the market has been gaining 20+% a year consistently since Covid (outside of 2022). This is causing metrics like CAPE ratio to hit dot com level highs. So there needs to be more, and larger, factors than just USD declining to justify the rampant stock market growth.

Adventurous_Initial6

The dollar has gone down is true. But we need to look at how much the dollar has gone down cs how much the market has gone up. DXY has experienced its worst year in over 4 decades. At the same time, the past 4 decades had been relatively bullish. The dollar is only down 4% in the last year. And it’s still higher now than it was during most of 2005-2020. Meanwhile, the market (SPY) has gone up 18% in the last year and tech (QQQ) has gone up 26%. Growth has been this way ever since Covid, outside of 2022, which is why we see macro indicators, like CAPE ratio, pushing record highs. So yes, the decline of the dollar is a factor, but more, and larger, factors are needed to justify the rampant growth of the stock market recently.

Guy_PCS

During the dot-com bubble, **NASDAQ Composite:** The tech-heavy NASDAQ index soared during the bubble, hitting a P/E ratio of 200 before the crash. **S&P 500:** The broader market also saw historic levels of overvaluation. The S&P 500's cyclically adjusted P/E (CAPE) ratio peaked at an all-time high of 44x

Guy_PCS

During the dot-com bubble, **NASDAQ Composite:** The tech-heavy NASDAQ index soared during the bubble, hitting a P/E ratio of 200 before the crash. **S&P 500:** The broader market also saw historic levels of overvaluation. The S&P 500's cyclically adjusted P/E (CAPE) ratio peaked at an all-time high of 44x

Visua1Mod

Honestly, bonds or SNSXX or SWVXX or worse comes to worst, cash. It’s all guesses, but I’d be surprised if we don’t see these price levels a few more times over the next five years. Things are literally FOMO, AI-bubble, CAPE 40 insanity. It’s not always a bad idea to take your chips off the table and watch some other people play for a while. But we all assess things differently.

Adventurous_Initial6

The government shutdown usually doesn’t have too much of an effect on the stock market. With that said, there are other indicators (look up CAPE ratio of Buffet Indicator) which do imply that valuations are at record highs. Nobody knows why the records keep coming, but my take (which is a pretty common one), is that people are over speculating on the effect of AI. For instance, AMD was up 38% premarket on news of an OpenAI partnership. Imo, that type of rise in the premarket is a reflection on the view the market has on AI.

BigShort1357

215% stocks/gdp- 43 CAPE- 3.4x sales- these are all record highs or close as well as 6-10 other indicators since 1870- yea why not buy more ..I do know cause u have a brain..sell into silly, buy into fear- this is the most giddy I’ve ever seen since 87’- dot com doesn’t compare to this…utter stupidity will get handled one way or another - enjoy :)

throwaway3113151

Look into the CAPE ratio and the next 10 years of returns. It paints a concerning picture. That said, it's nearly impossible to time the market.

D74248

CAPE is over 40. Do you understand what that means? Price to book is at 5.63. Do you understand what that means?

Adventurous_Initial6

I am going by the data. "If you were DCAing, it took half that" I had chatGPT simulate DCA-ing $100 dollars monthly from Jan 1990 in SPY and compare to the same DCA into a fixed 4% APY account. On, July 2012, the APY account still outperforms DCA into the market. It takes nearly 23 years (much longer than your proclaimed 6) for your investment to pay off. And if you retired 18 years later in March 2009, the 4% APY account had **61%** more money than the investment account. Regarding timing the market, I agree with you that nobody can time it perfectly. But to insinuate that you can't have any idea is just not true either. If [CAPE ratio](https://www.multpl.com/shiller-pe) is at 35 vs if it's at 15, you can take a look at the historical data and get **some** idea of what parts of a cycle we are more likely to be in. So my conclusion once again is: If your time horizon is 15/20 years or longer, then sure, all the potential crashes and whatnot is all noise compared to what you will have when you take your money out. But if it is less than that (God forbid), then these types of discussions regarding valuations will be had, especially in a sub like r/investing. If that weren't the case, this entire sub would be nonexistant.

Adventurous_Initial6

That statement would have been true (even more so) if you had said it in 2000. But that peak took 12.5 years to fully recover if you bought into SP500 (and even longer if you bought into QQQ/tech). And the only period of time historically when CAPE had been this high was that year. I’m not saying that we will see a repeat, but at the same time, discussing profit taking and ways to be cautious isn’t irrational also.

sloanemonroe

“The Shiller CAPE ratio for the S&P 500 is approximately 39.74 as of October 1, 2025. This value is significantly higher than its historical long-term average of about 31.31 and its 20-year average of 27.1, indicating a stretched market valuation.”

thrololololowaway

It might have been a chart with a logarithmic scale. Here's one: [https://www.macrotrends.net/2324/sp-500-historical-chart-data](https://www.macrotrends.net/2324/sp-500-historical-chart-data) You can also [go to Yahoo Finance, click the gear icon above the chart, and set it to "logarithmic."](https://finance.yahoo.com/quote/%5EGSPC/chart/#eyJsYXlvdXQiOnsiaW50ZXJ2YWwiOiJtb250aCIsInBlcmlvZGljaXR5IjoxLCJ0aW1lVW5pdCI6bnVsbCwiY2FuZGxlV2lkdGgiOjEuOTQwODE2MzI2NTMwNjEyMiwiZmxpcHBlZCI6ZmFsc2UsInZvbHVtZVVuZGVybGF5Ijp0cnVlLCJhZGoiOnRydWUsImNyb3NzaGFpciI6dHJ1ZSwiY2hhcnRUeXBlIjoibW91bnRhaW4iLCJleHRlbmRlZCI6ZmFsc2UsIm1hcmtldFNlc3Npb25zIjp7fSwiYWdncmVnYXRpb25UeXBlIjoib2hsYyIsImNoYXJ0U2NhbGUiOiJsb2ciLCJzdHVkaWVzIjp7IuKAjHZvbCB1bmRy4oCMIjp7InR5cGUiOiJ2b2wgdW5kciIsImlucHV0cyI6eyJTZXJpZXMiOiJzZXJpZXMiLCJpZCI6IuKAjHZvbCB1bmRy4oCMIiwiZGlzcGxheSI6IuKAjHZvbCB1bmRy4oCMIn0sIm91dHB1dHMiOnsiVXAgVm9sdW1lIjoiIzBkYmQ2ZWVlIiwiRG93biBWb2x1bWUiOiIjZmY1NTQ3ZWUifSwicGFuZWwiOiJjaGFydCIsInBhcmFtZXRlcnMiOnsiY2hhcnROYW1lIjoiY2hhcnQiLCJlZGl0TW9kZSI6dHJ1ZSwicGFuZWxOYW1lIjoiY2hhcnQifSwiZGlzYWJsZWQiOmZhbHNlfX0sInBhbmVscyI6eyJjaGFydCI6eyJwZXJjZW50IjoxLCJkaXNwbGF5IjoiXkdTUEMiLCJjaGFydE5hbWUiOiJjaGFydCIsImluZGV4IjowLCJ5QXhpcyI6eyJuYW1lIjoiY2hhcnQiLCJwb3NpdGlvbiI6bnVsbH0sInlheGlzTEhTIjpbXSwieWF4aXNSSFMiOlsiY2hhcnQiLCLigIx2b2wgdW5kcuKAjCJdfX0sInNldFNwYW4iOnsiYmFzZSI6ImFsbCIsIm11bHRpcGxpZXIiOjF9LCJvdXRsaWVycyI6ZmFsc2UsImFuaW1hdGlvbiI6dHJ1ZSwiaGVhZHNVcCI6eyJzdGF0aWMiOnRydWUsImR5bmFtaWMiOmZhbHNlLCJmbG9hdGluZyI6ZmFsc2V9LCJsaW5lV2lkdGgiOjIsImZ1bGxTY3JlZW4iOnRydWUsInN0cmlwZWRCYWNrZ3JvdW5kIjp0cnVlLCJjb2xvciI6IiMwMDgxZjIiLCJjcm9zc2hhaXJTdGlja3kiOmZhbHNlLCJkb250U2F2ZVJhbmdlVG9MYXlvdXQiOnRydWUsInN5bWJvbHMiOlt7InN5bWJvbCI6Il5HU1BDIiwic3ltYm9sT2JqZWN0Ijp7InN5bWJvbCI6Il5HU1BDIiwicXVvdGVUeXBlIjoiSU5ERVgiLCJleGNoYW5nZVRpbWVab25lIjoiQW1lcmljYS9OZXdfWW9yayIsInBlcmlvZDEiOi0xMzI1NTgzMDAwLCJwZXJpb2QyIjoxNzU5NTE4MDAwfSwicGVyaW9kaWNpdHkiOjEsImludGVydmFsIjoibW9udGgiLCJ0aW1lVW5pdCI6bnVsbCwic2V0U3BhbiI6eyJiYXNlIjoiYWxsIiwibXVsdGlwbGllciI6MX19XSwicmVuZGVyZXJzIjpbXX0sImV2ZW50cyI6eyJkaXZzIjp0cnVlLCJzcGxpdHMiOnRydWUsInRyYWRpbmdIb3Jpem9uIjoibm9uZSIsInNpZ0RldkV2ZW50cyI6W119LCJkcmF3aW5ncyI6bnVsbCwicHJlZmVyZW5jZXMiOnt9fQ==) It makes sense that the S&P 500 increases exponentially for a few different reasons. So looking at it with a logarithmic scale makes it linear. However, keep in mind this is not an assurance that the market is fairly valued. Plenty of metrics show that the S&P 500 is historically overpriced; for example, relative to the earnings of the underlying companies. CAPE ratio is a metric of that, which is near an all time historical high.

D74248

It just baffles me that it has to explained that it is not the market highs that have professionals nervous, it is the *valuations*. CAPE is over 40 -- which has only happened once before [and the next 10 years were ugly]. Price to book, price to sales, price to [anything] are at extraordinary levels.

harrison_wintergreen

based on CAPE ratio, which is far more accurate than Reddit understands, we're gonna see average inflation adjusted returns for S&P 500 returns over the next ~10 years at about 0%, with a high of maybe 4% and a low of -4%. https://www.advisorperspectives.com/images/content_image/data/d2/d2eb1e86ba3492ef907fef2a4da80df1.png I have lived through a lost decade, so this type of forecast is entirely conceivable to me. the chart above covers CAPE ratio for 1995 to 2020. the red dots are actual returns, while the blue dots are projected/estimated returns. the CAPE ratio is **highly** accurate.

Cracked_Tendies

>the only other time was at the peak of the Internet Bubble Well, japan's market hit like 50-55 CAPE back in 1990 and look how that turned out lol Emerging markets hit like 35 CAPE in 2007 and terrible performance since

BiblicalElder

Market does feel toppy CAPE is over 40 (the only other time was at the peak of the Internet Bubble) Fed should cut towards 3% (from 5.125%) but at some point, inflation will be more of a threat than lack of job growth But it could go up higher for longer, before a correction--good to be ready for both

throwaway3113151

Similar insights using CAPE here https://www.invesco.com/apac/en/institutional/insights/market-outlook/applied-philosophy-the-shiller-PE-and-SP-500-returns.html TLDR is Shiller P/E indicates about a 5%/yr total S&P 500 returns over 10 years, well below the 9%+ historical norm.

throwaway3113151

Over 20 year horizon something like CAPE is fairly predictive so there is evidence that shows a tilt now might payoff over the long haul

ryanalexander11

The job market is clearly fucked (thanks to AI). The US government just shut down (could be shut for weeks) and Trump is threatening to fire hundreds of thousands of worker. The FED is flying blind with sticky inflation. Tariffs just keep coming. K shaped economy. The CAPE ratio is 40 and The buffet indicator is 217%. AND THE MARKET RALLY'S TO ATH!!!! I think we are in for some shit that'll make COVID feel like an all inclusive vacation. https://preview.redd.it/a4lpwe3jnlsf1.png?width=1790&format=png&auto=webp&s=73015e07b9493669f5be8ebfceb2445348f664d1

throwaway3113151

I think people are far more worried about things like CAPE than a government shutdown.

MetricT

You appear to be trying to rationalize how we're *not* in a bubble right now. Fact is, we are, and it's a big one.  Look at non-CAPE valuation metrics like Tobin's Q, the (modified) Buffett Ratio, or Aggregate Investors Allocation to Equities (often considered the most accurate). CAPE + all the above are telling the same story:  we're in a massive bubble, and the last person holding is going to take a massive loss.

broke_ugly_dumb

CAPE like runescape capes?

D74248

> When was the last time the market didn't feel high? In my lifetime? Lots of times. But in the here and now CAPE is at 36.6, median value is 16.05. Price to book is 5.54, median is 2.91. Price to sales is 3.33, median is 1.60. It is not the market being high that has people concerned, it is the underlying valuations.

Flimsy_Roll6083

No, you can’t see the future or accurately predict market movements. Don’t fool yourself into thinking otherwise. You also cannot accurately pick winners and losers among start-ups. You can diversify and do your homework before investing or completely diversify and buy the whole market. Aside from that, there are people who get really lucky and you shouldn’t use their experience to inform your investment decisions. A true hedge that dilutes current earnings but gives you a boost to buy at the bottom is not a bad strategy to have ready at all times, but maybe 5-10% of the portfolio in a truly negatively correlated fund. Cash and Bonds (not high yield) are liquidity hedges, which you only need if you are within 5 years of needing to live on your investments. If you are 10-20 years from retirement, you don’t need a liquidity hedge because you just don’t sell ‘low’ for spending cash. Ride it out, the market has always come back. If it doesn’t, we’re all screwed and your relative wealth won’t change. Yes, on a P/E and CAPE basis, the market is high, but on a PEG basis it’s a little low. If you pull most out now and miss the next 35% up, where will you be relative to ‘set it and forget it’ when the market drops 40% after going up 35%? Don’t screw yourself.

D74248

Historically 10- and 15-year returns starting with CAPE over 30 have been dismal. Right now CAPE is over 39. This is why the institutions have been cautioning to expect 5% or lower returns over the next 10 years.

Odd-Flower2744

I used to not sweat it at all but Iv started to see how long term returns are pretty tightly correlated to stuff like CAPE and P/E ratio so I’m starting to get concerned. I’m only 28 though with around $13k invested though so really I’d benefit from a pull back happening sooner rather than later. It’s hard to stick money in but I really need to build up my emergency fund so now is a good time to do that and when I get more money to put in I’m just going to move more to international to make me feel a little better.

blorg

It's more stable and smooths out short-term economic cycles; "actual PE" is done on the trailing 12 months which is as arbitrary a time snapshot as 10 years. 12 month earnings can be volatile and unrepresentative of the long-term. The Shiller PE is a better indicator of potential over-valuation. If you look at [a comparison of Shiller PE vs trailing 12 month PE](https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio#/media/File:S&P_500_Shiller_P-E_Ratio.png) you'll see that the regular PE tends to peak during down periods- 1934, 2002, 2009. Short-term earnings collapsed, resulting in a very high PE, despite a decline in stock price. But this isn't indicating over-valuation, but the opposite- these were the bottoms for stock prices. By contrast, the Shiller PE is high around the tops in terms of the stock prices, and low around the bottoms. So it's a better indicator of valuation. /u/Academic_District224 was referring to the Shiller PE in terms of valuations, he mentions the CAPE ratio (Cyclically adjusted price-to-earnings ratio) further down which is the same thing as the Shiller PE.

OrdinaryReasonable63

No one rightfully knows what the market will do next year or in the next 5 years and my best guess as to what it will do at 10 years is that it will be higher. History suggests that forward returns may be below average starting at a high valuation, maybe so. Trying to position yourself for specific macroeconomic scenarios on these short time frames is just another name for making bets, it may work for you if you are an experienced macro trader but I suspect most people here are index investors or momentum chasers so really are probably agnostic to the P/E, CAPE, etc. I personally am an active value tilted investor and haven’t changed very much aside from re-balancing gains from securities towards some lower beta names that are historically cheap (healthcare), income-oriented securities (REITs/mREITs) and increasing allocation to corporate bonds/treasuries. I tend to follow an asset allocation that is most or less constant, following a version of modern portfolio theory. In terms of composition it has been 20% bond/corporate/MM regardless of what the market is doing for years.

harrison_wintergreen

>What is its relevance of the old Shiller PE(CAPE) ratio considering productivity increases based on technology? the Shiller p/e has been extremely accurate in recent years. Extraordinarily accurate. the red dots are actual market returns 1995 to 2020, while the blue dots are the projected returns based on Shiller P/Eh ttps://www.advisorperspectives.com/images/content_image/data/d2/d2eb1e86ba3492ef907fef2a4da80df1.png >Consider if you normalize the Shiller PE ratio to account for increases in productivity and the "new normal" for the level of earnings and productivity per unit capital. "this time is different" >My "target" Shiller PE is ~80 for 2026-2028, jumping to 300-1500 by 3032 depending on social and educational evolution being restructured by pressures from AI. that's delusional. are you trolling?

harrison_wintergreen

>Am I correct to have a sense of urgency not leaving this type of cash in CD’s perhaps. what's the time horizon? if you'll need this money in less than about 5 years just leave in CDs. if it's 5+ years, think about investing at least part of it. it's not all or nothing. you could invest half the cash, and leave the other cash in the bank. >despite the overvalued markets there are more options than VOO or VTI, which are at high valuations historically. VOOV, FNDX or SCHD has a much more attractive valuation than VOO. small cap stocks are also more reasonably valued (IJR, AVUV, SCHA), ditto for international broadly speaking. >how would you diversify? much more international, and probably more bonds. possibly diversify into more reasonably valued options. at current market valuations like CAPE ratio, the US market is likely to have disappointing returns in the next 10-12 years while international stocks are likely to perform better. Bonds are also likely to perform pretty well. The projections from Research Affiliates for the next 10 years are pretty typical, and historically their forecasts have been more accurate than not. you can see for yourself that international stocks are likely going to perform better than US stocks. https://tinyurl.com/336v3yvd >I’m 46, and not yet ready for bonds see above. Bonds beat the S&P 500 from 2000 to 2020, so you're not guaranteed to get the best long-term results from stocks. https://www.nytimes.com/2020/05/01/business/bonds-beat-stocks-over-20-years.html

Echo-Possible

I already addressed CAPE in a reply over an hour ago making this same point. [https://www.reddit.com/r/wallstreetbets/comments/1novnfp/comment/nfv026r/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/wallstreetbets/comments/1novnfp/comment/nfv026r/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)

skilliard7

That's why the CAPE ratio is a better metric for measuring if the market is overvalued, because it adjusts for cyclical earnings. https://www.multpl.com/shiller-pe CAPE right now is 40x. During the .COM bubble, it peaked at around 44x.

D74248

XMAG is an ETF using the S&P 500 without the Magnificent 7. CAPE is not available, but P/E is. XMAG P/E is 21.62, compared to 31.0 for the full S&P 500. Historically the median for the S&P 500 is 15.05. So on the face of it high, but not nosebleed levels. However, I suspect (but do not know) that taking out the top 7 best performing stocks throughout history would push valuations below the median for the full index.

D74248

However, CAPE at 40.15 does equal overvalued. Or else this time really is different. CAPE's median value is 16.05.

D74248

It is not the market being high, it is *valuations* being high. Price to book value is 5.61. This is higher than before the dot-com bubble. Price to sales is 3.38, it was 2.44 in 2000. CAPE is at 40.15, the only time in history, going back to before 1880, that it was higher was just before the dot-com bubble bursting. Its median value 16.05. You guys cheerleading this market with your simplistic chants are pushing novice investors into very risky positions.

Icy-Mycologist1524

CAPE of 40 was my target to start selling short term calls for some small gains. You keep buying your Palantir and Tesla at these levels and I’m sure it will work out great, just make sure to sell before you hold that bag.

throwaway3113151

Schiller CAPE is the only measure I follow and yeah the market is hot. Everyone always thinks the fundamentals no longer matter until they suddenly do again.

user-namepending

How's that CAPE doing you?

D_Pablo67

Earnings growth continues to accelerate with rising forward estimates. That allows me to keep investing with historically high CAPE.

D74248

Yea. CAPE, price to book and price to sales are just made-up numbers with no history. /s

D74248

Cisco was/is making money, and it has yet to get back to its dot-com high. Qualcomm was/is also profitable, and it took 20 years to recover. But the more important point is that CAPE is derived from earnings, and it is now as inflated as it was in early 2000.

D74248

CAPE is at 39.86.

D74248

2000 to 2013 for one. But it is not the "record highs" that have experienced investors nervous. CAPE is at 39.6. Median is 16.05. The only time that it has been higher than was just before the dotcom bubble burst, and it was not much higher than now. Even if you adjust CAPE for changes in accounting rules and stock buy backs you still have it at 34+. Historically, 10 and 15 year returns stating with CAPE over 30 have been dismal. Price to book value is at 5.57. This is extraordinarily high, and higher than its dot-com peak. Price to sales is the same story. 3.36 And so on and so on.

g0merade

Nope…nothing wrong with record high…but we are also in ~40 territory with the Schiller CAPE so it’s that earnings aren’t keeping up = there’s a correction coming…but of course no one knows when. Not shorting so I can outlast this exuberance by going to cash. Other way to look at it is that there’s only another 10% before we reach the all time max CAPE of the internet bubble. Given I’m still getting 4% on my money market…it’s not a bad bet to go cash now and buy back in after the correction.

Academic_District224

CAPE ratio / Shiller PE

BrawndoCrave

Well that’s quite a ways above the historical average for these companies. Look at the CAPE ratio of the S&P. It’s around 37 right now, while its historical average is around 20. Earnings just aren’t justifying the prices at the moment. At every point in history that it’s been this high it’s always reverted back down in dramatic fashion. When exactly it happens is the question but the way things are going I’m betting it happens in the next couple years.

flloyd

Yes but it's not usually at CAPE all time highs. [https://www.multpl.com/shiller-pe](https://www.multpl.com/shiller-pe)

I_Own_A_Fedora_AMA

CAPE is still way too high for a sustainable bull market. This bubble is temporary.

BatStandard9991

I am losing faith in the government and financial markets daily. The timing of the President's tweet is impeccable. President Trump probably just received the CPI report for tomorrow and probably has information that the FOMC is going to use to make a decision regarding interest rates. The report would have expecations, or information through the end of 2x26. Trump would be more privied to this knowledge than the investing public, for the next few hours. Trump has lost my respect in regards to manipulating financial markets. Trump is obviously attempting to hide the vaste negative effects of the tariffs, which are a tax on consumption paid ultimately by consumers, from the investing public. First it was the attack on the Federal Reserve Governors, then it was the attack on the Bureau of Labor Statics head, where by design, the claim of manipulation is not possible considering how vaste the surveys are in reality. Now it is an attempt to get the SEC to allow publicly traded companies to hide results for longer period of time from the investing public. Does Trump not realize that the 12 member board votes, not just the chairman? If you knew a recession was coming and potentially a depression, then would you boldly hold on to your portfolio? No, you would start letting go of stocks and heading towards safer investments. If Trump gets his way, then the only safe investment will be gold. The government has demanded the publics gold supply before, dont think they will not do it again, so dont think they will not force you back into a fiat currency. The stock indexes are hanging on valuation never seen before a prior with the expection of the months before the [dot.com](http://dot.com) price bubble and crash, >38 CAPE Shiller Ratio. Inflation is moving higher, unemployment rates are moving higher, many key industries are indicating economic contraction. Many big companies in the service industry missed earnings, McDonalds, Starbucks, Chipotle, etc. The normal consumer is struggling, now you hear CEOs talk about the 2 Tier economy, those who make under and above 100K. I am going to assume that households earning under 100K are already in a recessionary environment. Yet, the trade deal with China is not finalized, in fact, none of them are so long as Trump can unilaterally decide to add tariffs to anything. Trump influenced me to vote for him because I am against killing innocent babies and paying for it with tax dollars. Trump also influnced me to to vote because of illegal immigration, millions of illegals cannot just be here committing crimes and market saturating certain work markets. I am all for immigration, but it must be done legally and we must have the right to say no. I can now officially say that I am becoming sorry for voting for Trump. I am worried about America, my future, my investments and our political governance. I am becoing disgusted for Trump, his authoritarian rule, the, one party politics, non-Constitutional governance, catering to elite tech CEOs, manipulating fincial markets, attempt to obfiscate economic reality. I think many people are starting the feel the way I do also. Maybe it is time to start considering a dual citizenship plan.

Cut_Copies

CAPE approaching dotcom levels 👍

ItsAConspiracy

Plenty of portfolios will have reasonable returns without excessive downside in crashes. Split your assets between domestic and foreign stock, domestic and foreign government bonds including both long-term and short-term, and gold, and you're pretty much untouchable no matter what happens. Sounds like you're pretty far along this path already. You can play around with it on portfoliocharts, which will show you worst-case scenarios from the past fifty years in various countries. I don't know why people believe the history that tells them stocks have been great over the past century, and also don't trust the same history telling them that stocks kinda suck when CAPE ratios are this high.