If you’ve watched the S&P 500 climb through 2025 and into 2026, you might have wondered how much higher it can go. One old but respected valuation gauge is flashing a signal that hasn’t shown up in more than a century of market data, and it deserves attention if you’re at or near retirement.
That gauge is the Shiller cyclically adjusted price-to-earnings ratio, better known as the CAPE ratio. It’s sitting near 41, approaching a level it has only exceeded during one window in about 155 years of records, per data compiled by Robert Shiller of Yale University. The stakes are higher for retirees, since a poorly timed drawdown early on can become one of those financial mistakes that permanently shrinks how far your savings go.
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What the CAPE ratio actually measures
The CAPE ratio takes the S&P 500’s price and divides it by the average of the past 10 years of company earnings, adjusted for inflation. That 10-year window smooths out short booms and busts, so a single blockbuster or brutal year doesn’t warp the picture. A higher number means investors are paying more today for each dollar of long-run earnings, per Yale University data.
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Why some investors trust it more than a standard P/E
A standard price-to-earnings ratio uses just one year of profits, which could look artificially low in a strong year or artificially high in a weak one. The CAPE ratio averages a decade of inflation-adjusted earnings, which many analysts view as a cleaner test of whether prices reflect real earnings power or speculation. It tends to be less noisy than the trailing 12-month P/E, Shiller has noted in his book “Irrational Exuberance.”
The current reading in historical context
The Shiller CAPE ratio for the S&P 500 sat at 41.32 as of June 2026, according to Multpl.com. That makes it the highest reading outside the 1998 to 2001 dot-com window in the series stretching back to 1871. If it climbs past the December 1999 peak of 44.19, the market would enter valuation territory never seen in the modern data. Reference points:
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Long-run mean since 1881: 17.39
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September 1929, before the crash: 32.56
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December 1999, dot-com peak: 44.19
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The 1929 and 1999 comparisons
Those two prior peaks are what make the current reading uncomfortable for some investors. The September 1929 CAPE of 32.56 came just before the crash that launched the Great Depression, per data compiled by Shiller. The December 1999 reading of 44.19 came at the top of the dot-com bubble, and the S&P 500 delivered negative real total returns for the following decade.
What Robert Shiller himself has said
Robert Shiller, the Nobel laureate behind the ratio, has been publicly cautious for years. In 2014, he warned that CAPE above 25 had only been reached in periods around 1929, 1999, and 2007, and “major market drops followed those peaks.” In late 2025, he pointed to CAPE readings of 21.4 for European stocks and 25.1 for Japanese stocks, well below the U.S. figure, The Motley Fool reported.
The case for diversifying beyond U.S. stocks
The wide gap between U.S. and international valuations has caught the eye of major fund managers. As of its March 31, 2026 update, Vanguard’s Capital Markets Model noted that U.S. equity valuations declined somewhat during the first quarter, lifting the 10-year return outlook by 1 percentage point. However, they are “still significantly above long-term fair value,” Vanguard said. Higher starting yields also raised its forecasts for most bond sub-asset classes.
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Why bonds may look more attractive right now
Bonds have historically held up better than stocks in equity sell-offs, and higher starting yields have made them more attractive than during the ultra-low-rate years. Bond prices and stock prices often move in opposite directions, which is why fixed income can act as a ballast during rough stretches, Vanguard has noted. That matters most for retirees, whose portfolios have less time to recover from a sharp drawdown.
A cash buffer for flexibility near retirement
Holding a cash reserve outside of stocks and bonds may give retirees room to breathe when markets swing. If a downturn hits, a cash cushion can cover living expenses without forcing a sale of depressed shares, which can lock in losses that are hard to recover. Vanguard suggests short-term bond funds and cash-equivalent options as flexible pieces of a diversified income portfolio.
Where defensive sectors could fit in
Consumer staples, health care, and utilities have historically been more stable than technology and consumer discretionary during market drawdowns because demand for essentials tends to hold up. Kiplinger noted in a March 2026 analysis that defensive sectors such as health care and consumer staples continue to draw interest from investors seeking lower volatility. For retirees drawing income from their portfolios, that softer ride could mean smaller withdrawals from a shrunken account.
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What CAPE cannot predict
The Shiller PE has never been reliable at calling short-term market tops. In the late 1990s, it stayed above 30 for years before the dot-com peak, and elevated readings have persisted through long bull runs, per Multpl.com data. The ratio has historically been more useful for setting expectations of long-run returns than for timing exits, MacroRadar has noted.
Bottom line
A CAPE reading near 41 is not a prediction of an imminent crash, and it’s not a case for abandoning stocks. What it does suggest is that today’s prices leave less room for error than in most periods over the past 155 years, and that matters more if your working years are behind you than if you have 30 years to ride it out.
You should consider watching the Shiller Excess CAPE Yield, which compares the earnings yield with 10-year Treasury yields, and sat at 1.41 in June 2026, below its long-term average of 2.55, per GuruFocus. For retirees whose retirement savings are stretched thin, that reinforces a familiar principle of building your plan around risk you can live with rather than returns you hope to catch.
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