The Bubble Indicator: Is The Stock Market Overheating?

The CAPE ratio hit an all-time high during the Dot-Com bubble in 1999, which was followed by a 40% decline in the S&P 500 from 2000 to 2002.

More recently, the ratio climbed to 38.6 in 2021, its second-highest reading ever, fueled by massive pandemic stimulus and a big tech rally. The following year, the S&P 500 sank 19.4% as the Federal Reserve kicked off its monetary tightening cycle.

Similarly, the CAPE ratio has risen sharply as AI enthusiasm—particularly for Magnificent Seven stocks—has led stock prices to soar, making stock prices expensive by historical standards