Market Cycle Tracker - Shiller CAPE Ratio Analysis

CAPE Valuation Ranges & Expected Returns

Based on Shiller's research and 140+ years of S&P 500 data. Returns estimated via regression: Return = -0.327 × CAPE + 15.42 (R² = 0.74)

CAPE Range Market Assessment Historical Context Expected 10yr Real Return

< 12 Screaming Buy Rare - crises only 15%+

12 - 16 Very Attractive Below long-run average 10-12%

16 - 20 Attractive Near historical average 8-10%

20 - 25 Fair Value Moderately above average 5-8%

25 - 30 Expensive Top quartile historically 3-5%

30 - 35 Very Expensive Top 5% historically 2-4%

> 35 Bubble Territory Near dot-com peak levels 0-2%

CAPE Ratio History (1881-Present)

The Shiller CAPE divides the S&P 500 price by the 10-year average of inflation-adjusted earnings, smoothing out business cycle fluctuations. Data spans 140+ years from Robert Shiller's dataset at Yale.

Understanding the CAPE Ratio

What is CAPE?

The Cyclically Adjusted Price-to-Earnings ratio (CAPE or Shiller PE) divides the S&P 500's current price by the 10-year average of real (inflation-adjusted) earnings. This smooths out business cycle fluctuations that distort the standard trailing PE ratio.

Why CAPE over Trailing PE?

Trailing PE can be misleading during recessions (when earnings temporarily collapse, inflating PE) or booms (when peak earnings deflate PE). CAPE provides a more stable, cycle-aware measure of valuation with 140+ years of data backing the relationship to future returns.

Important Caveats

CAPE can remain elevated for extended periods due to structural changes (tax rates, buybacks, sector mix). It is not a timing tool -- it sets return expectations over 10-year horizons. Always consider alongside other indicators.