S&P 500 Shiller CAPE Nears 40, Flashing Second-Highest Valuation on Record

3 articles · Updated · The Motley Fool · May 26

Near 40, the S&P 500 Shiller CAPE ratio has climbed to its second-highest level ever, reviving warnings that U.S. stocks may be overvalued and vulnerable to a correction.
That reading compares current prices with 10-year inflation-adjusted earnings, and past extremes preceded major downturns: about 35 before the Great Depression and roughly 44 during the dot-com bubble.
The latest signal does not guarantee a 2026 crash, though, because the ratio has trended higher since the Great Recession as tech-heavy valuations lifted the broader market.
Over the past 12 months, the S&P 500, Dow and Nasdaq have gained 30%, 24% and 41%, underscoring both the rally's strength and the risk that weaker, hype-driven stocks could be hit hardest in any selloff.
History still points to long-term resilience: U.S. stocks have recovered from every prior recession, bear market and crash, favoring investors who hold fundamentally strong companies through volatility.

Is the AI boom making traditional market warning signs like the CAPE ratio obsolete?

As markets hit all-time highs, is investor FOMO overpowering clear economic recession warnings?

Beyond holding cash, which specific sectors offer the safest haven if the market corrects?