Cyclically Adjusted Price Earnings Ratio (CAPE): 10 Key Considerations

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Cyclically Adjusted Price Earnings Ratio (CAPE): 10 Key Considerations

The cyclically adjusted price earnings ratio (CAPE), also known as the Shiller P/E ratio, is a measure of the overall stock market's valuation. It is calculated by dividing the current price of the S&P 500 index by the average of the past 10 years of earnings, adjusted for inflation.

The CAPE ratio is often used to assess whether the stock market is overvalued or undervalued. A high CAPE ratio suggests that the market is overvalued, while a low CAPE ratio suggests that the market is undervalued.

10 Key Considerations About the CAPE Ratio

The CAPE ratio is a long-term indicator. It is not intended to be used for short-term trading decisions.
The CAPE ratio is not a perfect predictor of future market performance. However, it can provide some insights into the market's overall valuation.
The CAPE ratio is based on historical data. It does not take into account future earnings growth.
The CAPE ratio is not adjusted for risk. It does not take into account the volatility of the stock market.
The CAPE ratio is not a substitute for other investment analysis techniques. It should be used in conjunction with other factors when making investment decisions.
The CAPE ratio can be used to identify potential buying and selling opportunities. A high CAPE ratio may suggest that the market is overvalued and that it is time to sell, while a low CAPE ratio may suggest that the market is undervalued and that it is time to buy.
The CAPE ratio can be used to compare the valuation of the stock market to other asset classes. For example, a high CAPE ratio may suggest that the stock market is overvalued compared to bonds.
The CAPE ratio can be used to track the progress of the stock market over time. A rising CAPE ratio may suggest that the market is in a bull market, while a falling CAPE ratio may suggest that the market is in a bear market.
The CAPE ratio can be used to identify potential bubbles. A rapidly rising CAPE ratio may suggest that the stock market is in a bubble.
The CAPE ratio is a useful tool for investors who are interested in long-term investing. It can provide some insights into the market's overall valuation and help investors to make informed investment decisions.

Historical CAPE Ratios

The following table shows the CAPE ratios for the S&P 500 index since 1928.

Year	CAPE Ratio
1928	17.2
1929	20.8
1930	14.9
1931	7.8
1932	5.9
1933	8.2
1934	12.0
1935	14.3
1936	17.6
1937	20.3
1938	12.8
1939	14.8
1940	11.4
1941	13.4
1942	13.0
1943	13.8
1944	15.6
1945	16.3
1946	16.7
1947	17.2
1948	16.3
1949	14.4
1950	13.7
1951	13.4
1952	14.0
1953	14.6
1954	14.2
1955	15.1
1956	16.8
1957	17.9
1958	16.4
1959	19.4
1960	20.7
1961	22.8
1962	23.8
1963	22.7
1964	21.1
1965	19.7
1966	20.3
1967	19.1
1968	18.2
1969	19.0
1970	16.7
1971	15.7
1972	16.3
1973	18.0
1974	13.3
1975	10.7
1976	11.4
1977	12.7
1978	13.4
1979	14.3
1980	14.6
1981	15.0
1982	13.0
1983	13.0
1984	14.0
1985	16.3
1986	19.2
1987	22.9
1988	23.5
1989	23.5
1990	21.3
1991	20.0
1992	19.0
1993	21.7
1994	25.4
1995	26.3
1996	27.2
1997	32.1
1998	35.5
1999	43.5
2000	34.2
2001	27.7
2002	22.9
2003	25.1
2004	26.6
2005	29.3
2006	32.0
2007	34.6
2008	23.9
2009	20.9
2010	23.3
2011	22.2
2012	24.2
2013	24.9
2014	26.3
2015	25.9
2016	25.1
2017	27.9
2018	31.3
2019	32.7
2020	38.8
2021	38.2
2022	31.8

CAPE Ratios for Other Countries

The CAPE ratio is not just used to measure the valuation of the U.S. stock market. It can also be used to measure the valuation of stock markets in other countries.

cyclically adjusted price earnings ratio cape