The Stock Market Is at a 40-to-1 CAPE Ratio Seen Only Twice Before. 1929 and 1999 Preceded Crashes.

The S&P 500 has risen about 9% year to date and roughly 28% over the past year, yet valuations now show an extreme signal. The cyclically-adjusted price-to-earnings ratio, or CAPE, divides the S&P 500 price by the trailing 10-year average of inflation-adjusted earnings. A CAPE near 40 means investors pay about 40 dollars for each dollar of average real earnings over the prior decade. CAPE has touched the 40 range only three times: 1929, 1999, and today. In 1929, euphoria and leverage preceded the Great Depression. In 1999, dot-com valuations collapsed, with the Nasdaq losing about four-fifths of its value afterward.

"“There's only been 2 other times in history where we've had a 40 to 1 CAPE ratio, and that was 1929, 1999, and today.”"

"1929: The Mirror That Stings The roaring twenties produced exactly the kind of investor euphoria that pushes valuations to the moon. Margin debt vaulted, retail piled into hot names, and the prevailing view was that a new industrial era justified any multiple. The 1929 crash erased decades of paper wealth and rolled into the Great Depression. The CAPE warning was right. The recovery, by any honest measure, took years."

"1999: The Mirror Investors Lived Through The dot-com peak rhymed precisely. Internet companies with no profits were valued like sovereign mints. CAPE crossed 40. The Nasdaq lost roughly four-fifths of its value over the following years, and the S&P"

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