The S&P 500’s CAPE ratio has climbed above 40 again, putting the U.S. stock market in a valuation zone that has been seen only in the dot-com bubble over 155 years of market data. Robert Shiller’s measure now hovers around 41, far above its historical average of 17.8.
That matters now because investors are already dealing with a rally that has been fueled mostly by enthusiasm around AI, even after the S&P 500 has gained 12% so far in 2026. Both the S&P 500 and the Nasdaq Composite have recently suffered sharp declines, a reminder that high prices can wobble even when the broader trend has been up.
Shiller’s CAPE ratio compares share prices with inflation-adjusted earnings over 10 years, which is why it is often used to judge whether the market is cheap or rich by long-term standards. At around 41, it is more than twice the measure’s average of 17.8, and only once before in sustained fashion did it stay above 40: during the dot-com bubble, when it peaked around 44 in December 1999.
The other widely watched gauge, the Buffett indicator, is flashing the same broad message. It currently sits around 237%, meaning the stock market is valued at $2.37 for every $1 of annual U.S. economic output. That level looks extreme on its face, though it is not a perfect comparison because many companies in the S&P 500 operate globally, and business activity generated overseas can lift valuations without showing up in U.S. GDP.
That is where the comparison with the late 1990s becomes useful and incomplete at the same time. Microsoft, Alphabet, Amazon and Nvidia generate substantial revenue and cash flow, unlike many speculative internet companies from that era that never even generated sales. So the market is not repeating the dot-com bubble in exact form, even if its valuation readings are brushing against the same ceiling.
The harder part for investors is that expensive does not mean an immediate reversal. Rising valuation metrics suggest future stock market returns will be weaker than investors have grown accustomed to, but neither the CAPE ratio nor the Buffett indicator tells anyone exactly when the next correction will arrive. Selling everything now because stocks look expensive could mean missing out on additional gains in the long run, which is why the next move for the S&P 500 remains the one nobody can time with confidence.
