Terms

Cyclically Adjusted Price to Earnings Ratio

CAPE Ratio
CAPE
Valuation

The Cyclically Adjusted Price to Earnings Rate (CAPE) is a valuation metric that smooths out earnings volatility over a number of periods

More About Cyclically Adjusted Price to Earnings Ratio

  • CAPE is a variant of P/E Ratio
  • CAPE uses long-term earnings instead of short-term to smooth out one-time quater to quarter abberations
  • Has a good track record of predicting when stock are overvalued
  • Typically uses 10 years of prior earnings data
  • Also known as the Shiller Ratio

Historical CAPE Values

  • Historically has had a median of roughly 15.5x
  • Almost hit 45x in the 2001 tech bubble
  • Second highest ratio in 2019 (greater than during the 1929 Stock market crash)
    • 28.8 in 2019;  70% higher than historical average of last 138 years