The Shiller CAPE just crossed 40.
It has only done that twice before.

What the CAPE measures, and why it matters

Where the Buffett Indicator measures the entire stock market against the size of the US economy, the Shiller CAPE measures the S&P 500 against its own earnings — specifically, against the average inflation-adjusted earnings of the prior ten years. Robert Shiller, who won the Nobel Prize in Economics in 2013, designed it that way to smooth out the noise of any single year's profits and reveal the underlying valuation.

Its long-run median is roughly 16. Its typical range over the past twenty years has been between 28 and 36. The reading today is approximately 40. That is in the top one percent of all readings in the data series, which extends back to 1881. The only periods that ever exceeded today's level were the run-up to the 1929 crash and the dot-com bubble peak of 2000.

Starting valuations have a tight grip on long-term returns

Cliff Asness of AQR Capital put it plainly: as starting CAPE ratios rise, 10-year forward returns fall almost monotonically. The relationship is not deterministic — valuation does not predict crashes, and the timing of market peaks is genuinely unknowable — but the relationship between today's price and the next decade's average return is among the most robust patterns in financial economics.

Below is what the historical data shows. The horizontal axis is the Shiller CAPE at the start of a 10-year period. The vertical axis is the annualized real return that followed. Each dot is a quarter of historical data going back to 1900.

The implied future annual return from today's CAPE level, per GuruFocus's own historical regression model, is approximately 1.3 percent. That is the median real return historically associated with this starting valuation. The Buffett Indicator projects roughly negative 1.1 percent over the same horizon. Two valuation models, designed independently, built on different data sources, currently produce return forecasts within two percentage points of each other — and both are deeply below what retirement projections typically assume.

It is worth noting Shiller's own caveat: CAPE is not a market-timing tool. Markets can stay expensive far longer than seems rational, just as they did from 1996 through early 2000. But over a decade, the historical relationship has held up remarkably well across every developed market in the world, and it has held up especially well at the extremes.

Independent lenses producing the same answer

Any single valuation indicator can be dismissed. Critics of the Buffett Indicator argue that US-headquartered multinationals now earn 40 percent of their revenue overseas, distorting the market-cap-to-domestic-GDP comparison. Critics of CAPE argue that the previous decade's accounting rules artificially depressed earnings during the financial crisis, inflating today's ten-year average price-to-earnings ratio.

Both critiques have merit. Both have been raised at every valuation extreme of the past century. And the point is this: when two independent models, built on different inputs by different economists across different decades, simultaneously produce single-digit forward return projections from current levels, the burden of proof shifts to the optimist.

For an investor still in the accumulation phase — ten or more years from drawing income — this is largely an inconvenience. Lower expected returns mean save more, work longer, or accept a different lifestyle in retirement. The math is uncomfortable, but the options are clear.

For an investor within five years of retirement, or already retired, the same valuation environment poses a categorically different problem. A standard portfolio drawing down 4 percent annually during a sustained lost decade can run out of money in a way that ordinary market volatility does not produce. This is the sequence-of-returns problem, and it is the single most underappreciated risk facing utility-industry retirees who built wealth in the long bull market that ended in 2021.

The same diagnosis. A different treatment.

The valuation environment is the same for every investor in America. What differs is what you do about it — and that difference is shaped largely by who is sitting across from you when the conversation happens.