Robert Shiller's S&P 500 CAPE Ratio Archives

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

We have revised the bull-bear market leading indicator to improve its responsiveness, stripping it down to a composite of five key indicators. At present, two of five indicators signal risk-off, indicating medium risk of a US bear market.

Bull/Bear Market Indicator

Cyclical Employment

Cyclical employment improved to 27.540 million, 132K below its preceding peak of 27.671 million in September 2024. A decline of 300K from the preceding peak would signal risk-off.

Heavy Truck Sales

The 12-month average of heavy truck sales declined to 32,300 units in April 2026, continuing the risk-off signal. Heavy truck sales reflect the transportation industry's confidence in the economic outlook. A fall of more than 10% below the preceding peak signals risk-off, while a 10% rise above a trough indicates risk-on. Heavy Truck Sales (Units)

Stock Pricing

US stock pricing declined to 95.82% from its high of 96.66% two weeks ago and the recent low of 91.79% eight weeks ago.

US Stock Market Value Indicator

We use z-scores to measure each indicator's current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

Shiller CAPE

Robert Shiller's CAPE ratio retreated to 39.80 from its peak of 41.33 last week. The recent peak was the second-highest in history, behind the Dotcom bubble in 1999-2000, and values are far above the long-term average of 22.4. CAPE smoothes out business-cycle effects by comparing the S&P 500 index to a 10-year average of inflation-adjusted earnings. Robert Shiller's S&P 500 CAPE Ratio

Conclusion

The Bull-Bear indicator suggests the US economy is slowing, but not yet in a recession.

Pricing is growing more extreme, increasing the risk of a significant drawdown.

Acknowledgments

Prof. Robert Shiller: CAPE 10 Data
S&P Global: S&P 500 Sales and Earnings Estimates
University of Michigan: Survey of Consumers
Federal Reserve of St Louis: FRED Data
Bureau for Economic Analysis: Motor Vehicles Data

Managing Risk

To find out more, go to Managing Risk on the top menu, or see:

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

Key Points

We are in the midst of an inflationary boom, driving stock prices and home prices to record highs.
But that is about to collide with a global oil shock of unprecedented proportions.

The inflationary boom is driven by:

Tax cuts from Trump’s “Big Beautiful Bill.”

Fed rate cuts. The Fed has two mandates: first, to maintain price stability by keeping inflation in check; second, to keep the economy at full employment. The Unemployment Rate (blue) was already low, below 5.0%, and Core PCE Inflation (red), the Fed’s favored inflation measure, was above its 2.0% target, which did not justify rate cuts.

Fed Funds Target Rate (Upper Limit), Unemployment Rate, Core PCE Inflation

[Content protected for Premium, Australian Growth, International Growth, Market Analysis members only] …..

If you are already a subscriber, please login to continue reading:

If you are not a subscriber, to find out more click here