The cyclically adjusted price-to-earnings ratio for the S&P 500 reaches 40, a level last seen in 1999 before a major market crash.
The S&P 500’s cyclically adjusted price-to-earnings (CAPE) ratio has climbed to 40, a threshold last crossed in 1999 during the dotcom bubble. The metric, which smooths earnings over a decade, signals elevated valuations compared to historical averages.
The S&P 500 has surged 104% since late 2022, while the Nasdaq-100 has rallied 173%. Over the past three months alone, the indexes have gained 17% and 29%, respectively. The previous CAPE peak of 44 in 1999 preceded a 50% drop in the S&P 500 and a 78% decline in the Nasdaq.
Unlike the 1999 market, today’s leaders in the AI sector are characterized by strong cash flows and robust balance sheets, potentially mitigating downside risks.