StockTiming

Valuation signal

The Shiller PE, honestly: how expensive the market is — and why it can’t time it

The Shiller PE — the CAPE ratio — is the most-cited gauge of whether the whole market is cheap or dear, measuring price against ten years of inflation-adjusted earnings. It is genuinely useful for one thing and genuinely dangerous for another. Here is what it measures, where today’s reading sits, and why treating it as a timing signal has cost investors years of gains.

Live valuation — S&P 500 (Shiller CAPE)

41.6 · top 4% (30y)

Very expensive vs history

Caution

As of 2026-06-05 · educational, not investment advice

See this alongside every signal on the market dashboard →

What it is

The Shiller PE — also called the CAPE ratio (Cyclically Adjusted Price-to-Earnings) or simply PE 10 — measures how expensive the entire market is. An ordinary price-to-earnings ratio divides today’s price by the last single year of earnings; the Shiller PE divides it by the average of ten years of earnings, adjusted for inflation. That ten-year average is the whole idea.

Why average a decade? Corporate earnings swing violently with the business cycle — they collapse in recessions and spike in booms. A one-year P/E can look deceptively cheap at a profit peak and terrifyingly expensive at the bottom of a recession, exactly when earnings have cratered. Smoothing ten years of inflation-adjusted earnings strips out that cycle, so the ratio reflects durable earning power rather than a single year’s accident.

It was popularised by the Nobel laureate Robert Shiller, who maintains a price-and-earnings series stretching back to 1871 — and that long history is what gives the measure its authority. Across that whole span the ratio has averaged roughly 16 to 17. Readings in the 30s and 40s are historically rare and have clustered near major market peaks.

How it's calculated

CAPE is the market’s real (inflation-adjusted) price divided by the average of its last ten years of real earnings per share. Both the price and the decade of earnings are first converted into today’s dollars, so inflation does not distort comparisons between eras decades apart.

The live reading on this page uses Robert Shiller’s own monthly data series, brought up to the current month. It shows today’s value and where that ranks against all history since 1871 — and, because the market has structurally re-rated higher over time, also where it ranks against just the last 30 years, which is a fairer like-for-like. CAPE is a slow, monthly number, so the reading is dated rather than live-by-the-second.

How to read it

Cheap — low versus history

Bullish lean

The market is priced below its long-run norm. Buying when CAPE is low has, on average, gone with above-average returns over the following decade. A long-run tailwind — not a sign that this month is the bottom.

Around its historical norm — fair

Neutral

Valuation is roughly average — neither a tailwind nor a headwind. Here the other timing lenses (trend, breadth, momentum) carry far more information than the CAPE does.

Expensive — high versus history

Caution

The market costs a lot per dollar of smoothed earnings. This has tended to precede weaker long-run returns and leaves less cushion in a drawdown — but it says almost nothing about the year ahead.

Very expensive — near historic extremes

Caution

A level seen only near major peaks. It raises the stakes on the next decade’s returns and the depth of an eventual drawdown — yet expensive markets have kept getting more expensive for years before any reversion.

When it fails

CAPE is close to useless for timing, and that is the headline, not a footnote. Expensive markets have stayed expensive — and grown more expensive — for years and even decades. The ratio looked historically high all through the late 1990s, yet the market roughly tripled from the mid-90s before it finally peaked in 2000; anyone who sold on valuation alone sat out one of the great bull runs. CAPE is a weather outlook for the next ten years, not a forecast for the next twelve months.

The level itself has also drifted upward over time, so a naïve comparison to the full 1871-onward average overstates how stretched things are. Persistently lower interest rates, accounting-standard changes that depressed reported earnings after the 1990s, lighter dividend payouts (more cash returned through buybacks), and a heavier weighting toward high-margin technology firms have all plausibly pushed the "fair" level higher than it was a century ago. That is why the reading above also shows a percentile against the last 30 years — comparing today’s market to the post-1990 era is a fairer fight than comparing it to the railroad age.

See it for yourself

See what a drawdown costs

Valuation’s real warning is about drawdown risk and the long grind back to even. Dial different drawdown depths and watch how many years a full recovery actually takes — the cushion a cheap market gives you, and the one an expensive market quietly takes away.

See what a drawdown costs →

Frequently asked

What is the Shiller PE (CAPE ratio)?
The Shiller PE, or CAPE ratio (cyclically adjusted price-to-earnings), values the whole stock market by dividing its price by the average of ten years of inflation-adjusted earnings. The ten-year average smooths out the booms and busts of the business cycle, so it reflects durable earning power rather than a single year’s profits. It was popularised by the Nobel laureate Robert Shiller and uses data going back to 1871.
Is the stock market overvalued right now?
By the Shiller PE you can read it for yourself from the live figure at the top of this page, which shows today’s CAPE and where it ranks against both all of history and the last 30 years. A reading well above its long-run average of roughly 16 to 17 means the market is expensive versus history. But "expensive" is a statement about likely returns over the next decade, not a prediction that prices will fall this year — expensive markets have stayed expensive for a long time.
Does a high CAPE ratio mean a crash is coming?
No. A high CAPE has, on average, gone with weaker returns over the following ten years and larger eventual drawdowns, but it has almost no power to predict the next year. The market has traded at high CAPE levels for years at a stretch — through the late 1990s and again more recently — without an imminent crash. Treat a high reading as a reason to temper long-run return expectations and respect drawdown risk, not as a crash alarm.
Can you use the CAPE ratio to time the market?
Not for entries and exits. CAPE’s signal plays out over a decade, so selling because the ratio looks high routinely means sitting out years of further gains. Its honest use is to set expectations for long-run returns and to size risk — not to decide whether to be in or out this month. On the historical record, jumping in and out of the market on valuation has underperformed simply staying invested.

Keep going

Educational, not investment advice. No signal predicts the future, and no single reading is a buy or sell instruction — this is a structured way to understand what each timing signal is actually telling you.