The S&P 500’s cyclically adjusted P/E ratio reaches 42.2, nearing the 1999 peak of 44.2 amid elevated valuations.
The S&P 500’s cyclically adjusted price-to-earnings (CAPE) ratio has climbed to 42.2, its highest level since November 1999, when it peaked at 44.2 during the dot-com bubble. The CAPE ratio, which adjusts for inflation and smooths earnings over a decade, signals elevated market valuations.
Historically, the CAPE ratio has averaged just over 27 since 1990, underscoring the current market’s premium. While not a flawless metric, the ratio provides a long-term perspective on equity valuations, excluding short-term distortions like the COVID-19 pandemic.
The last time the CAPE ratio approached these levels, the dot-com bubble burst, leading to significant market declines. However, the metric does not predict timing or severity of potential corrections.