A new era of permanent prosperity.
The prevailing belief was that modern industry and technology had made the old market rules obsolete. The valuation peak was followed by a historic destruction of wealth.
The same valuation lens that flagged 1929 and the dot-com bubble now sits near 40 times average earnings — the third-highest reading in roughly 145 years of recorded U.S. market history.
Bailey Financial Services · Watkinsville, Georgia
A Different Lens, the Same View
Where the Buffett Indicator compares the entire stock market with the size of the U.S. economy, the Shiller CAPE compares the S&P 500 with its own normalized earnings.
Its long-run median is roughly 16. The reading today is approximately 40 — about two and a half times the historical norm. That places the market in the top one percent of all readings in a data series extending back to 1881.
The only periods that exceeded today’s level were the run-up to the 1929 crash and the dot-com bubble peak of 2000. CAPE cannot tell us when an expensive market will turn. It can tell us how little margin for disappointment remains.
The Historical Record
The 1929 and 2000 peaks were different markets with different technologies, policies, and stories. What they shared was an extreme price paid for normalized earnings.
Shiller CAPE · Key Readings
Monthly Shiller CAPE for the S&P 500, 1900 through May 2026. Only 1929 and the 2000 dot-com peak exceeded today’s level. Long-run median ~16x · past 20-year average ~28x · today ~40x. Bars scaled to a 45x axis.
Three Extraordinary Readings
A new era of permanent prosperity.
The prevailing belief was that modern industry and technology had made the old market rules obsolete. The valuation peak was followed by a historic destruction of wealth.
The internet would change everything.
It did — but investors still paid too much. The companies and technology survived; many shareholders endured a lost decade.
Artificial intelligence will change everything.
It may. The more important investment question is whether today’s price already assumes years of exceptional growth with almost no room for disappointment.
What History Says Comes Next
Valuation is a poor short-term timing tool but a powerful long-term expectation-setting tool. Across history, ten-year forward real returns have generally fallen as the starting CAPE has risen.
The supplied regression places the implied future annual real return from today’s CAPE near 1.3 percent — and the Buffett Indicator produces a similarly subdued outlook from a completely different set of inputs. Neither model can identify the market’s peak; both challenge the return assumptions commonly built into retirement projections.
At extreme valuations, the question is not whether the market can rise further. It is how much future return may already have been pulled forward.
What does a 40x market mean for your retirement plan?
The Portfolio Preparedness Review can help identify concentration, withdrawal risk, and whether your assumptions depend on returns that current valuations may not support.
Take the Portfolio Preparedness ReviewWhen Two Models Agree
Any single valuation indicator can be criticized. The Buffett Indicator may be distorted by overseas corporate revenue. CAPE may be affected by accounting changes and unusual earnings periods. Those are fair objections.
The important point is that two models created by different people, in different decades, using different inputs are both describing unusually weak prospective returns from current prices.
Shiller CAPE
~1.3%Supplied historical-regression estimate for annualized real returns from a CAPE near 40.
Buffett Indicator
~−1.1%Supplied long-term return estimate from record market capitalization relative to the economy.
One overvaluation signal is noise. Two independent signals from different methodologies are the data trying to tell you something.
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For an investor decades from retirement, lower expected returns are uncomfortable but manageable — there is time to save more, work longer, and continue accumulating during weak markets. For someone within five years of retirement, or already withdrawing income, the same environment creates a different problem: a major decline or lost decade early in retirement can permanently damage the plan through sequence-of-returns risk.
How a Fiduciary Responds
The valuation environment is the same for every investor. What differs is whether the portfolio is examined honestly and whether the strategy reflects both today’s prices and the investor’s stage of life.
Conventional Response
Assume the old plan still works.
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Test the plan against today’s reality.
A Conversation, Not a Sales Pitch
The Portfolio Preparedness Review is a practical first step toward determining whether your strategy is built for the next decade — or still depends on the exceptional returns of the last one.
Wilder Bailey
Principal · Independent Fiduciary RIA
Bailey Financial Services, Inc. · Watkinsville, Georgia
Wilder@BaileyFS.net
Disclosures: Bailey Financial Services, Inc. is an investment adviser registered with the State of Georgia. This page is provided for educational and informational purposes only and does not constitute investment, tax, or legal advice or a recommendation to buy or sell any security. The Shiller CAPE ratio and related valuation models are descriptive statistical relationships, not market-timing forecasts. Past performance does not guarantee future results. Valuation figures, historical descriptions, and regression estimates reflect a May 2026 draft and should be verified against current cited sources.