The S&P 500's Shiller CAPE ratio, which averages inflation-adjusted earnings over ten years to smooth out short-term swings, has risen above 40. Research Affiliates data shows this level has been reached only around the dot-com peak and briefly in 2021. The long-run average for the ratio sits near 17.
A CAPE above 40 means investors are paying more than twice the historical price for every dollar of smoothed earnings. That compression of future returns is not a prediction of an imminent crash, but it does significantly lower the expected ten-year gain for anyone buying a broad S&P 500 index fund today. Valuations at these levels have historically rewarded international equity and value-tilted ETFs on a relative basis.
July 30: Federal Reserve rate decision. August 13: July CPI inflation report. October and November: S&P 500 Q3 earnings season.
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