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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitchesThe CAPE ratio compares a broad stock-market price index with about 10 years of inflation-adjusted earnings. It smooths earnings across business cycles, making it useful for assessing long-term valuation context—but it cannot tell you when the market will rise or fall. A high CAPE is a measure of price relative to past earnings, not a countdown to a crash.
What the CAPE ratio measures
CAPE stands for cyclically adjusted price-to-earnings. It is also called the Shiller P/E or P/E10. In its familiar form, it divides a stock-market price measure by the average of roughly 10 years of inflation-adjusted earnings.
Adjusting for inflation puts earnings from different years into comparable purchasing-power terms before averaging them. Using a decade of earnings dampens the effect of unusually strong or weak profits in a single year or business-cycle phase. As a result, CAPE asks how much investors are paying for a unit of earnings averaged across a longer period—not what a company or the market earns right now.
How CAPE is calculated
A simplified formula is:
CAPE = market price index ÷ average of the previous 10 years of inflation-adjusted earnings
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The well-known Shiller series is a specific historical dataset, not a universal formula implemented identically by every provider. Robert J. Shiller’s official data page describes monthly stock-price, earnings, dividend and consumer-price data beginning in January 1871. Prices are monthly averages of daily closes. Since 1926, monthly dividend and earnings observations are computed from S&P four-quarter totals and linearly interpolated; earlier figures draw on historical Cowles data and are interpolated from annual figures. The CPI-U begins in 1913, with an earlier historical price-index splice used for inflation adjustment.
Those construction choices matter. Index coverage, earnings definitions, inflation series, timing and the CAPE variant can differ across providers, so readings from different versions may not be directly comparable. Keep the index, earnings basis, inflation adjustment and calculation method consistent when comparing values.
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What a high or low reading says
A higher CAPE means the market price is high relative to the preceding decade’s real earnings; a lower reading means price is lower relative to that earnings history. Historical studies have associated elevated starting valuations with lower average returns over some long horizons. That makes CAPE a context-setting valuation measure, not a precise fair-value threshold or a guaranteed return forecast.
A high reading does not establish that a downturn is imminent. Valuations can stay high or rise further, and their meaning depends partly on conditions such as interest rates and inflation. Vanguard explains that lower rates can support higher valuations by reducing discount rates; its February 2024 article also cautions against making drastic asset-allocation changes based on valuation alone. The market-condition figures in that article refer to January 2024, not current conditions.
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The answer depends on the forecast horizon and the historical period examined. In its March 2, 2025 analysis, covering data through February 28, 2025, Invesco Global Market Strategy Office found a practically zero relationship between its CAPE measure and one-year-forward S&P 500 returns over 1983–2024. That result is a warning against using CAPE to time the next year’s market moves.
Invesco reported a stronger relationship with 10-year-forward returns in a selected 1983–2015 sample: an R² of 0.78. Using the full history since 1881, the reported R² fell to 0.10. These are results for particular samples and methods, not universal measures of forecast accuracy. Invesco also noted that average Shiller P/E levels were higher after 1983 than during 1953–1983, underscoring that a historical average is not necessarily a timeless benchmark.
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Vanguard’s 2026 discussion similarly treats valuation as one contributor to total return alongside earnings growth, dividends and currency effects, and describes valuations as poor short- and intermediate-term predictors. Historical relationships can help frame long-horizon expectations, but they do not specify what returns an investor will receive.
Why the calculation and market context matter
Interest rates and inflation
A raw CAPE comparison does not adjust for every economic condition. Interest rates affect the discount rate investors use to value future cash flows, while inflation can alter both earnings and valuation comparisons. Vanguard’s CAPE analysis adjusts for inflation and interest rates, illustrating why a single unadjusted historical average may not tell the whole story.
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Share repurchases and payout practices
Changes in how companies return money to shareholders can affect earnings per share and the conventional CAPE denominator. Shiller’s official data page documents a total-return CAPE variant intended to address the effect of changing payout practices, including share repurchases. Comparisons should use the same version throughout.
Historical sample and index coverage
Predictive relationships vary with the dates included in a study, and providers may use different index or earnings conventions. Before comparing a reading with a historical benchmark—or with another service’s figure—check that the underlying series and period are comparable.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to use CAPE in a personal-finance decision
CAPE is most useful as one piece of long-term context. It can help explain why a starting valuation might affect average returns over an extended period, but it cannot tell an investor when to buy, sell or change a portfolio. Vanguard cautions that valuations are not a market-timing tool. Avoid treating a high reading on its own as a reason for a drastic allocation change; consider it alongside your time horizon, risk tolerance, diversification and broader financial plan.
Is there a current CAPE reading?
Any current figure needs a date, source and method. Risk Premium Research Tools reported an estimate of about 41.6 on October 7, 2026, but its methodology holds earnings flat after reported earnings available through June 2026 and scales the estimate with price and the deflator. That is an unofficial price-scaled estimate, not a confirmed October observation in Shiller’s primary monthly dataset. Shiller’s official data page is the primary source for the historical series; readers who need the latest official monthly value should check the dataset’s release date and calculation rather than treating the third-party estimate as equivalent.
For optional background on market psychology, Shiller’s official data page also identifies Robert J. Shiller’s Irrational Exuberance. The book is not required to calculate or interpret CAPE.
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