What Is CAPE (the Shiller PE) — Valuation Based on 10 Years of Earnings

CAPE (Cyclically Adjusted PE) is the share price divided by the 'average inflation-adjusted earnings per share (EPS) over the most recent 10 years.' It is also called the Shiller PE.

Popularized by Yale professor Robert Shiller, it uses a 10-year average instead of a single year's erratic earnings to filter out distortions from the business cycle and inflation.

The ordinary PE has the problem of coming out abnormally high in a year when earnings plunge; CAPE mitigates this.

CAPE has been observed over a long period and has recorded several extremes.

The long-term average is often cited as roughly 16 (depending on the calculation method, it is sometimes computed in the low 30s), and the historical range has been about 4.78 to 44.2.

Among major peaks, it recorded about 32.56 just before the 1929 Great Depression and about 44.20 at the peak of the 2000 dot-com bubble. As of July 2026 it is about 41, far above the long-term average.

What is interesting is that CAPE first exceeded 30 in 1997, but the market peak came about 3 years later. High valuation did not immediately mean a decline.

CAPE is useful for gauging 'whether the market is historically expensive right now.' A tendency has been observed for poor real returns over the following 10 years after a high CAPE (for example, from after 1929 into the 1940s, and effectively flat over 2000-2011).

But its limits are clear.

1. It is not a timing tool. High valuation can persist for years, so a high CAPE is not a signal to 'sell now.' 2. Environmental changes such as low interest rates can shift the appropriate level itself. 3. Standards differ by country and era, making absolute comparison difficult.

CAPE is a 'warning light' that leads you to set lower long-term return expectations; it is not a tool for predicting future prices.