Stock Market Warning Signal Seen Only 5 Times Since 1871 Points to Serious Downside Risk

A valuation warning tied to the Shiller CAPE ratio is flashing again, drawing attention to potential downside risk for the S&P 500. The metric—cyclically adjusted price-to-earnings for the index—has peaked above 30 only five times since 1871, and several peaks preceded major sell-offs. The article lists 1929, 1999, and October 2021 as examples, noting that the ratio recently reached 41.8, its second-highest level ever and higher than any time since 1999. However, it cautions that CAPE isn’t a perfect predictor; it ignores buybacks and relies on GAAP earnings that have changed over time. The piece also notes the index delivered strong returns despite high readings since 2009.