Shiller PE Ratio (CAPE)

The Shiller PE — also called CAPE, for cyclically adjusted price-to-earnings — divides the S&P 500's real price by the average of its inflation-adjusted earnings over the prior ten years. The insight that makes it different from an ordinary P/E is the ten-year smoothing: by averaging a full business cycle of earnings, it strips out the temporary booms and busts that distort a one-year ratio. A standard P/E can look deceptively cheap at a profit peak and absurdly expensive at a recession trough; CAPE largely avoids both traps.

That smoothing is why CAPE is treated as a valuation gauge for the market as a whole rather than a snapshot. It asks not what the market costs relative to last year's profits, but relative to a decade of normalized, inflation-adjusted earning power. The result is a slower-moving, more stable measure that has historically done a better job of flagging when prices have run far ahead of underlying profitability.

CAPE is read against its own long history. The ratio has averaged in the high teens, with a long-run median near 16, so readings well above that mark indicate the market is expensive relative to its normalized earnings, and readings well below it indicate it is cheap. The percentile shown on the page places the current value against the full sweep of history back to 1881, which is more useful than the raw number because the comparison is what gives the level meaning.

The critical caveat in reading CAPE is that it is a poor short-term timing tool. A high CAPE has historically been associated with lower average returns over the following decade, but valuations can stay elevated for years without reverting. The ratio tells you something about the long-run starting point, not about what happens next quarter, and treating an elevated reading as an immediate sell signal has repeatedly proven costly.

Two forces move CAPE: the price of the market and the ten-year average of real earnings in the denominator. Because the denominator is smoothed over a decade, it changes slowly, so over short horizons CAPE is driven mostly by price. Rising prices push the ratio up; falling prices pull it down. Interest rates sit behind this, since lower rates justify higher valuations and have historically accompanied elevated CAPE readings.

Over longer horizons the denominator does the work as a full decade of earnings rolls forward, which means a single recession's depressed profits can keep CAPE elevated for years after prices recover, since the weak earnings linger in the ten-year average. Structural shifts — changes in profit margins, accounting standards, the sector mix of the index, and the level of real rates — all feed into where CAPE settles, which is part of why some argue its historical average is not a fixed anchor.

CAPE's history reads like a map of market extremes. It reached roughly 33 just before the 1929 crash, its highest level up to that point, and then collapsed into the single digits by the early 1930s. Its all-time high came at the dot-com peak in 2000, when it hit approximately 44 — the most expensive the US market has ever been on this measure. The high-inflation early 1980s, by contrast, saw CAPE fall to around 7, marking one of the great buying opportunities in hindsight.

Those extremes frame the whole record. Single-digit readings appeared at major bottoms like 1920 and 1982, while readings above 30 have been rare and clustered around the 1929 and dot-com peaks, with elevated levels recurring in the years since. The long arc shows a measure that has spent extended periods both far below and far above its high-teens average, which is precisely why it is debated as a timing tool even as it remains a respected long-run valuation gauge.

MacroRadar shows CAPE as a monthly series under SHILLER_CAPE, sourced from Robert Shiller's published dataset, which extends the calculation back to 1881. The numerator is the real (inflation-adjusted) price of the S&P 500; the denominator is the average of the index's real earnings over the trailing ten years. Both legs are converted to constant dollars before the ratio is taken, which is what makes the comparison meaningful across more than a century of changing price levels.

The methodology invites two well-known critiques. First, accounting changes over time — how earnings are defined, write-downs treated, and margins reported — mean the ten-year earnings figure is not perfectly comparable across eras, which can bias the ratio. Second, persistently lower real interest rates and structurally higher profit margins in recent decades have led some to argue CAPE's historical average understates a 'fair' modern level. These debates do not invalidate the measure, but they caution against treating a single threshold as definitive.

CAPE is the valuation anchor of the equity complex. It takes the S&P 500 index level — a bare price — and turns it into a judgment about how expensive that price is relative to a decade of earnings, which is the context the price chart alone cannot provide. The S&P 500 Dividend Yield, built from the same Shiller dataset, offers the income-side view of the same valuation question, and the two often move together as prices rise and fall.

Read alongside the Nasdaq Composite, CAPE helps frame whether expensive valuations are concentrated in long-duration growth names or spread across the broad market. Together the index level, the Nasdaq, this CAPE, and the dividend yield form the equity and valuation complex on MacroRadar, where CAPE supplies the cyclically smoothed valuation perspective that the price-based charts lack.

The macro-regime panel above places the current CAPE in context. An elevated reading alongside low real rates and easy financial conditions has historically reflected a market willing to pay up for earnings, while lower readings have appeared after prices fell or earnings normalized higher. Because CAPE moves slowly, it is most informative as a read on the long-run starting point rather than the near-term path.

This is context, not a forecast — and explicitly not a crash signal. A high CAPE has historically been associated with more muted long-run returns, but it has stayed elevated for years on multiple occasions, so MacroRadar presents it as a historical indicator rather than a market-timing tool. The useful reading pairs the level with real rates, margins, and the regime backdrop rather than treating any single threshold as a verdict.

CAPE matters because the price an investor pays going in has historically shaped the returns earned coming out: buying when the ratio is low has tended to precede stronger long-run returns, and buying when it is high has tended to precede weaker ones. For long-horizon investors that makes it one of the better available gauges of the starting valuation, even though it says nothing reliable about the next year.

The chart's value is perspective — placing today's valuation against more than a century of booms and busts, from single-digit troughs to the dot-com peak near 44. It is not a timing tool, and a high reading is not a sell signal; valuations can stay stretched for years. Treat CAPE as one long-run input within a diversified plan. This is a historical indicator, not investment advice.