As of June 2026, the Shiller CAPE ratio, which measures current stock prices relative to inflation-adjusted earnings over the past 10 years, stood at 40.96. This level has been touched only one other time in market history: from late 1999 to early 2000. That was right before the tech bubble burst, which resulted in the S&P 500 (SNPINDEX: ^GSPC) falling by half and the Nasdaq-100 dropping by 80%.
Market watchers regularly quote the Shiller CAPE ratio, and many are speculating on whether the next big market crash is imminent. And while it’s natural to want to use this number as a sell signal, interpreting it requires a more nuanced view.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
What the CAPE is and isn’t telling you
The long-term median CAPE ratio, going back to the 1870s, is 16.1. Let’s say you wanted to use that benchmark as a relative value signal in the markets. Let’s go further and say you wanted to sell stocks whenever the CAPE ratio got above 20, believing the market would be overvalued and at high risk of correcting at that point.
Following that logic, you would have sold the S&P 500 at the beginning of 2010 and never gotten back in. You’d have missed out on a 562% gain in the S&P 500 and a 1,480% return in the Nasdaq-100.
Just because stocks get historically expensive doesn’t mean a correction is imminent and you need to sell. The CAPE ratio is simply telling you that stocks are pricey at the moment. What happens from there is unknown.
U.S. stocks are certainly expensive by long-term standards. The CAPE ratio is definitely telling us that. It isn’t to be interpreted as a firm sell signal, though.
How to position your portfolio today
Warren Buffett’s Buffett indicator, which measures relative stock market value but against GDP, is similar. Buffett said that at current levels, investors are “playing with fire” and should expect below-average returns in the coming years.
He didn’t tell people to sell, though. It’s also important to remember that the Nasdaq-100 was up more than 100% in 1999 as the CAPE ratio was at record levels. The market didn’t peak until the end of March 2000. The stock market continued heading significantly higher for months before the bear market really began.
The same could happen in 2026, and the case for it is actually pretty strong. S&P 500 earnings growth was up more than 20% year over year in Q1, and the same is expected for Q2. Earnings growth ultimately drives stock prices, and it’s likely to be tougher for them to correct significantly when earnings are growing at this pace.
