The S&P 500 Shiller cyclically adjusted price-to-earnings (CAPE) ratio reached 40 in June 2026—only the second time since 1871 that the metric has climbed to this level.
Yale economics professor Robert Shiller developed the CAPE ratio to measure overall market valuations using a 10-year moving average of inflation-adjusted earnings. This differs from traditional P/E ratios, which rely on the last four quarters of reported earnings.
The metric spiked to 40 first in early 1999, then climbed above 41 later that year and remained elevated until October 2000. The S&P 500 subsequently fell more than 45 percent from its peak during the dot-com crash and took nearly seven years to fully recover.
Before 1999, the CAPE ratio had breached 30 only once—in 1929, shortly before the stock market crash and Great Depression. From 1871 through 2000, the ratio averaged approximately 15.7 and remained below 25 for most of U.S. stock market history.
More than two decades passed without the metric rising above 40 until its June 2026 rebound. Asset manager Invesco has found that the S&P 500 delivered negative annualized returns over the subsequent decade when the CAPE ratio reached similarly elevated levels.
Historically, CAPE reversion has occurred through one of two paths: either stock valuations fall or earnings rise substantially. Valuation declines have been the more common driver.
