A Second Lens on the Same Warning
The Shiller CAPE crossed 40. History has only been higher twice.
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.
A Different Lens, the Same View
One number does not predict tomorrow. It can say a great deal about the next decade.
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 market has visited this altitude only twice before.
The chart makes the present reading hard to dismiss. 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.
Three Extraordinary Readings
Different stories. The same valuation problem.
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
The higher the starting price, the lower the long-term return has tended to be.
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 estimate places the implied future annual real return from today’s CAPE level near 1.3 percent. The Buffett Indicator produces a similarly subdued long-term 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.
When Two Models Agree
Independent lenses are producing the same warning.
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. Bailey Financial Services
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 valuation 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 same diagnosis. A different treatment.
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.
- Elevated valuations“Stay the course”
- Withdrawal stress testOften absent
- Single-stock concentrationMay remain
- Bond allocationGeneric glide path
- Primary responseWait and hope
Bailey Financial Services approach
Test the plan against today’s reality.
- Elevated valuationsRight-size risk
- Withdrawal stress testLost-decade scenarios
- Single-stock concentrationDiagnose explicitly
- Bond allocationCustom to the plan
- Primary responsePrepare deliberately
A Conversation, Not a Sales Pitch
Two valuation models agree. What does your plan say?
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
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, regression estimates, and chart data were retained from the supplied May 2026 draft and should be checked against the original cited sources immediately before publication.