JUL · ISSUE 30 · July 22, 2026
VALUATIONThe most expensive market since 2000
Shiller's CAPE just hit 41. The only time it stood higher was right before the tech bubble burst.
SHILLER CAPE
41.12
highest since 1999
RULE OF 20
31.1
balance sits at 20
S&P FAIR VALUE
~4,489
vs 7,500 actual
THE NUMBER
41.12
↑ Shiller CAPE, priciest since the dot-com era
CAPE compares price to the average 10-year earnings adjusted for inflation. At 41, it has only one precedent in modern history: the 44.2 dot-com peak of 1999.
DATA
ZOOM IN31.1
31.1
P/E 27.6 + CPI 3.5 · balance at 20
In plain terms: for these prices to make sense, earnings have to jump or inflation has to drop. Both at once would be the best of all worlds.
The rule of 20 adds the historical P/E (27.6) to inflation (3.5). Balance is 20. At 31, the margin of safety has all but vanished.
- CPI
- — Consumer Price Index. The inflation gauge that tracks the cost of living.
- MARGIN OF SAFETY
- — The cushion between what you pay and what something is worth. Thinner means more fragile.
QUOTE
AUTHORITYCAPE is not a stopwatch
“A high valuation doesn't tell you when the market will fall. It tells you the next decade of returns will probably be poorer.”
The man who built the gauge is blunt about it: it measures the risk to future returns, not the day of the turn.
- CAPE
- — The valuation gauge Shiller popularized, also called the Shiller P/E.
- FUTURE RETURN
- — What you expect to earn from here on, not what has already been earned.
- REVERSION
- — The tendency of extreme multiples to drift back toward their average over time.
TREND
17 YEARSThe quiet climb of the multiple
17 years of multiple expansion. Price has climbed faster than earnings. That gap is exactly what CAPE measures.
CAPE since the 2009 crisis. The line at 20 is the balance point of the classic rule. It fell below it long ago.
- MULTIPLE
- — What the market pays per dollar of earnings. It rises with optimism.
- EXPANSION
- — When price rises because people pay more for the same, not because they earn more.
IMPLICATIONS
WHAT IT MEANSThree things a CAPE of 41 is telling you
WEAKER RETURNS AHEAD
Historically, buying with CAPE above 35 has been followed by 10-year returns well below average. Not guaranteed, but it's the pattern of the past century.
LESS CUSHION
With valuation stretched, any earnings miss or rate rise hits harder. The same scare hurts twice as much when you already paid up.
TIMING STILL ISN'T VISIBLE
Expensive can keep rising for months or years. In 1997 it was already dear, and the market doubled before it broke in 2000. Valuation is not timing.
The multiple doesn't call the top. But it changes the risk-and-reward math of whatever you buy today.
- RISK/REWARD
- — The balance between what you can gain and what you can lose on a bet.
- MISS
- — When results come in below what the price had already priced in.
EXAMPLE
ILLUSTRATIVEA sample mix for an expensive market
When expensive can stay expensive, the answer is rarely to exit entirely. It's to raise the cushion of cash and quality.
This is NOT advice or a real portfolio. It's an example of a defensive split when valuation is stretched. Levels are indicative.
- QUALITY
- — Firms with high margins, low debt and a durable competitive edge.
- DECORRELATION
- — An asset that doesn't move with the rest, useful when everything falls at once.
WATCHLIST
5 KEY ETFsFive ways to read the valuation
| SPY | 751 | ▲ +0.9% | Cap-weighted S&P. The mega-cap tech names are what stretch the whole multiple. |
| RSP | 182 | → +0.1% | Equal-weight S&P. Flat today: the rally isn't reaching most stocks. |
| VTV | 180 | ▲ +0.3% | US value. Lower multiples, the flip side of the expensive coin. |
| QUAL | 182 | ▲ +0.2% | Quality factor. Solid firms if you must pay up, with less risk. |
| BIL | 100 | → +0.0% | 1-3 month T-bills near 4%. The risk-free rival to an expensive market. |
Five baskets that tell the market's multiple dispersion. Levels are indicative, not exact closing prices.
- ETF
- — Exchange-traded fund: a basket that tracks an index and trades like a stock.
- EQUAL-WEIGHT
- — An index where every company counts the same, not by its size.
- FACTOR
- — A selection rule (value, quality, size) that filters the index.
WRAP
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- CAPE
- — Cyclically adjusted 10-year P/E. At 41, near a historic record.
- RULE OF 20
- — P/E plus inflation. Above 20 means expensive; today it sits at 31.