S&P 500 CAPE ratio hits 41, its highest level since the dot-com bubble

The Shiller CAPE ratio for the S&P 500 has climbed to approximately 41.1, a level not seen since the peak of the dot-com bubble. To put that in perspective, the long-term average for this metric since the 1880s sits around 17. The market is currently trading at more than twice that historical norm. For those unfamiliar, the CAPE ratio works like a price-to-earnings ratio with a memory. Rather than dividing a stock index’s price by a single year of earnings, it uses the average of ten years of inflation-adjusted earnings. The idea is to smooth out the boom-and-bust swings in corporate profits and reveal what you’re actually paying for a dollar of normalized earnings. How extreme is a CAPE of 41? The current reading places the S&P 500 in the top 1% of all historical valuations going back to 1881. That is not hyperbole. Out of roughly 1,700 monthly data points in Robert Shiller’s Yale dataset, only a tiny handful have recorded ratios at or above current levels. The all-time record was 44.2, set in December 1999, right before the dot-com crash erased trillions in market value over the following two years. The present reading of 41.1 sits uncomfortably close to that watermark. T...