Cyclically Adjusted Price-Earnings Ratios

BECAUSE STANDARD PRICE-EARNINGS ratios can be misleading, some investors rely on cyclically adjusted price-earnings ratios, or CAPE, a measure developed by Yale University professor Robert Shiller and fellow economist John Y. Campbell. CAPE is often referred to as the Shiller P/E.

The Shiller P/E is based on an average of reported earnings for the past 10 years, with earnings from earlier years adjusted upward to reflect inflation. This averaging has the benefit of smoothing out earnings, which can fluctuate widely from year to year. The average Shiller P/E was 20.1 over the past 50 years and 17.2 over the past 100 years. But the average since year-end 1989 has been 25.6, suggesting that the CAPE multiple may have moved into a permanently higher range. At the end of 2018’s second quarter, it stood at 32, one of the highest readings ever.

If the Shiller P/E has moved permanently higher, that’s both good news and bad news. The good news is, we may not see a reversion back to the 50-year average P/E of 20.1, which would knock 37% off current share prices. The bad news is, with valuations so elevated, returns are likely to be modest because we probably won’t see valuations climb much higher. Those rising valuations have helped to contribute to the stock market’s impressive long-run return.

If you want to dig deeper into the data on U.S. market valuations, check out the Online Data tab on Robert Shiller’s home page. Meanwhile, you can find the Shiller P/E for foreign markets, as well as other valuation measures, by going to You can also find thought-provoking commentary on P/Es at

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