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The cyclically adjusted price-to-earnings ratio for the S&P 500 has surpassed 32 for the third time in 156 years, a threshold that historically precedes significant market corrections.
The current reading stands at nearly 41, driven by rapid gains in technology stocks fueled by optimism over generative artificial intelligence.
This valuation level exceeds the 100-year average annual return of roughly 10% for the index, which has grown at a rate of 21% annually over the past four years.
Nobel Prize-winning economist Robert Shiller introduced the CAPE ratio in 1988 to measure long-term overvaluation by comparing the S&P 500 to its 10-year average inflation-adjusted earnings.
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