The Stock Market Just Passed a Threshold It's Only Crossed Once in 150 Years. Don't Ignore History.
The S&P 500 has surged 79% since 2022, and one closely watched valuation gauge just did something it has done only once in 150 years. Here's what the Shiller P/E hitting 40 says about where the market goes next -- and why history is worth heeding.
The Stock Market Just Passed a Threshold It's Only Crossed Once in 150 Years. Don't Ignore History.
Overview
The S&P 500 (SNPINDEX: ^GSPC) has climbed roughly 104% since the fall of 2022, and the Nasdaq-100 has done even better at 173%. Since the end of March alone, the indexes have added 17% and 29%, respectively. Runs like this tend to come with a feeling they can go on forever.
But that's not how markets work, unfortunately. And for those paying attention, an important metric just crossed a line it's only crossed once before in 150 years of market history -- during the dotcom bubble.
Details
The metric in question is the cyclically adjusted price-to-earnings (CAPE) ratio. It's also known as the Shiller P/E, after Nobel laureate Robert Shiller, who developed it. The CAPE divides the S&P 500's price by its average inflation-adjusted earnings over the prior 10 years. That decade of smoothing helps strip out near-term distortions, making it a useful zoomed-out read on whether stocks are cheap or expensive.
Source
Originally published at www.fool.com.
