CAPE Ratio.

The Cyclically Adjusted Price-to-Earnings (CAPE) ratio, also known as the Shiller P/E after Yale economist Robert Shiller, measures a stock market's valuation by dividing the current price of an index by the average of ten years of inflation-adjusted earnings. By smoothing out the earnings figure across a full decade, the metric removes the distortions that a single year's boom or recession can introduce into a conventional price-to-earnings ratio. The resulting number reflects how expensive equities are relative to their long-run earning power, making it one of the most widely cited tools for assessing whether a broad market — most commonly the S&P 500 — is cheap, fairly valued, or stretched. A CAPE ratio well above its historical average (roughly 16–17 for the U.S. market) has historically preceded periods of below-average returns over the following decade, though the timing of any correction is famously unpredictable. Critics of the ratio point out that accounting-rule changes, the shift toward share buybacks instead of dividends, and the growing weight of high-margin technology companies may structurally push the ratio above its 20th-century norms. Supporters counter that even a flawed long-run signal is more reliable than short-run price momentum. Long-term investors use the CAPE ratio as one input when deciding how aggressively to tilt toward or away from equities versus bonds and other asset classes. It is not a timing tool — markets can remain expensive or cheap for years — but as a valuation compass it has few peers among simple, publicly available metrics.