There isn’t enough evidence to verify that the S&P 500 is at its cheapest level in decades by the metric behind that claim. More importantly, even a correctly measured low valuation would not, by itself, tell you whether stocks will rise soon. Valuation is one input for long-term expectations; your time horizon, ability to withstand losses, cash needs and portfolio diversification matter more when deciding whether to invest.
What the “cheap in decades” claim does—and does not—establish
The claim appears to rely on the PEG ratio, which relates a price-to-earnings multiple to an estimate of earnings growth. But the available reference does not give the PEG value, the date it was measured, the growth estimate used, or the historical series behind the “in decades” comparison. Without those details, the headline comparison cannot be checked. It should not be treated as a verified measure of the S&P 500’s current valuation.
That matters because a valuation ratio is only meaningful alongside its inputs and comparison set. A PEG ratio based on one growth forecast can differ from one based on another. Nor is PEG interchangeable with CAPE, a forward P/E or a free-cash-flow measure. Each uses a different denominator and can support a different comparison.
What the main valuation measures compare
| Measure | What it compares | What it can help assess | Important limit |
|---|---|---|---|
| Shiller CAPE, also called P/E 10 | Market price against a 10-year average of inflation-adjusted earnings | Longer historical context | It is not a dependable short-term market-timing tool. Changes in payout policy can also complicate comparisons based on earnings per share. |
| Forward P/E or earnings yield | Price against expected earnings over the next 12 months, or the inverse of that ratio | Current earnings expectations and comparisons with bond yields | It relies on forecasts and does not use a long-term historical earnings average. |
| Free-cash-flow yield | A broad measure of corporate free cash flow relative to enterprise value | A macro-level view of cash available to owners | Results depend on the measurement framework; this measure does not remove market risk. |
| Vanguard fair-value CAPE percentile | CAPE relative to Vanguard’s modelled fair-value level | Relative valuation within Vanguard’s model | The cited universe is the MSCI US Broad Market Index, not precisely the S&P 500, and the result is model-specific. |
| PEG | A P/E multiple relative to expected earnings growth | A growth-adjusted comparison when its inputs are specified | The cited reference supplies no exact value or assumptions; growth estimates can materially change the result. |
For any ratio, check the denominator, market coverage, historical period and sensitivity to interest rates or accounting and payout practices. A low reading on one measure does not mean the market is likely to rise in the near term.
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Why CAPE is a long-history measure, not a near-term signal
Robert Shiller’s official dataset describes monthly U.S. stock-price, dividend, earnings, interest-rate and CPI data beginning in January 1871. Since 1926, its monthly dividend and earnings figures use S&P four-quarter totals with linear interpolation; earlier observations draw on Cowles annual data interpolated to monthly values. Shiller also introduced an alternative total-return dataset in September 2018 to account for the greater importance of share repurchases relative to dividends and their possible effect on earnings per share.
Those details help explain why historical comparisons depend on how a measure is constructed. CAPE smooths earnings across a decade, while a forward P/E uses expected earnings over the coming year. Neither is the same as a PEG ratio, and one cannot substitute for another to validate the “cheap in decades” claim.
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What current valuation evidence says—and what it doesn’t
Forward P/E and the equity premium
The Federal Reserve Board’s Financial Stability Report says the aggregate forward P/E of S&P 500 companies had risen to the upper end of its historical distribution since 1989. It also reports that the estimated equity premium—the forward earnings-to-price ratio minus an expected real 10-year Treasury yield—was well below its historical median. The report section was last updated March 2, 2026. These observations caution against calling stocks broadly cheap across valuation measures, but they are not a real-time October 2026 market reading.
Vanguard’s model-based valuation estimate
Vanguard’s 2026 update put broad U.S. equity valuations at effectively the highest historical percentile observed in its model, up from an already elevated 99.7th percentile. Those observations are dated June 30, 2026, and use CAPE relative to Vanguard’s estimated fair-value CAPE for the MSCI US Broad Market Index. This is neither raw Shiller CAPE nor an S&P 500 PEG reading.
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A cash-flow explanation for persistent high ratios
A 2026 Minneapolis Fed article presents a different interpretation of elevated traditional valuation ratios. Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri use macroeconomic accounts and a broad free-cash-flow measure to argue that changes in corporate cash generation and distributions to owners can help explain why conventional ratios have stayed above older norms. Their work says traditional U.S. market valuation ratios have been above historical norms for 25–30 years.
In the researchers’ accounting decomposition, the fraction of corporate output going to free cash flow rose by about 8 percentage points from the early 1980s to the present, matched by an 8-percentage-point decline in labor’s share of value added. They report that free-cash-flow yield fell sharply after 2023 but remained close to its postwar average in their analysis. Their explanation offers a framework for interpreting elevated ratios; it is not proof that stocks are cheap, correctly priced or immune to a decline.
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Should you buy stocks now?
There is no dependable answer for every investor based on one valuation statistic. Vanguard says valuations tend to be poor predictors over short and intermediate horizons and should not be the primary reason to change an allocation. It sees them as more relevant over horizons generally 10 years or longer. Its 2026 update also notes that earnings growth and dividends, not valuation alone, contribute to total returns.
For a personal-finance decision, consider these questions before making an allocation change:
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- When will you need the money? Money needed soon has less time to recover from a market decline than long-term investment money.
- Can you tolerate a substantial loss without selling? Your capacity for loss includes both your finances and your ability to remain invested when markets fall.
- Do you have near-term cash needs covered? Avoid relying on stocks for expenses that cannot wait through a downturn.
- Is your portfolio diversified? A decision about U.S. stocks should be considered alongside exposure to other asset classes and markets, rather than in isolation.
- Would a rules-based investing plan help? A planned allocation and consistent contributions can reduce the temptation to make a large, all-at-once decision based on a single market headline.
This is general financial education, not individualized investment advice. A valuation reading can inform expectations, especially over long horizons, but it cannot establish what the market will do next month or next year.
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