S&P 500 Shiller P/E ratio hits 40.13, a rare market milestone
The S&P 500 Shiller P/E ratio closed at 40.13, which is 130% above its 156-year average of 17.44.
The short version
- This has happened only 5 times in the last 30 years.
- Check your retirement accounts and index funds.
- Past instances when the Shiller P/E topped 30 were followed by market pullbacks of 20% to nearly 50%.
The stock market has reached a rare valuation milestone that has occurred only 5 times in the last 30 years, according to Yahoo Finance. On Oct. 30, the S&P 500 Shiller Price-to-Earnings Ratio, also known as the Cyclically Adjusted P/E Ratio, closed at a multiple of 40.13.
That reading sits 130% above its 156-year historical average of 17.44. Over the last 30 decades, the Shiller P/E has exceeded 30 during the internet frenzy of the late 1990s, the blockchain hype of 2017, the lead-up to the 2020 crash, and the pandemic stimulus era of 2020 to 2022.
Each of those 4 previous instances was followed by a significant market tumble, including the dot-com bust and the 2022 bear market. The current valuation surge, driven largely by the artificial intelligence revolution, pushed the CAPE ratio as high as 42.84 in early June.
While the valuation metric cannot predict exact timing, history shows that premium stock prices have often foreshadowed deep pullbacks of 20% or more in major indexes. Check your 401(k) statements and index fund holdings to see how your portfolio is positioned for potential market swings.
