The cyclically-adjusted price-to-earnings ratio reaches 40, a level previously seen only before the 1929 crash and 2000 dot-com bubble.
The S&P 500’s cyclically-adjusted price-to-earnings (CAPE) ratio has climbed to 40, matching levels last observed in 1929 and 1999. The gauge, which divides the index’s price by a 10-year average of inflation-adjusted earnings, signals elevated valuations rarely sustained in market history.
Historically, CAPE ratios at or above 40 preceded the Great Depression and the dot-com crash. The metric smooths earnings volatility, making its extreme readings a long-term warning signal rather than an immediate trigger. Prior instances saw sharp market declines following peaks.
The S&P 500 has risen 9% year-to-date and 28% over the past 12 months, reflecting strong investor appetite despite lofty valuations. The CAPE ratio’s current level underscores concerns about sustainability amid high equity prices.