S&P 500 Shiller CAPE Ratio (Cyclically Adjusted PE Ratio 2023)

The Current Shiller PE Ratio Is 30.82

The Shiller PE Ratio or CAPE – also known as cyclically adjusted price-to-earnings is a valuation indicator that helps investors & traders to understand whether the stock market (S&P 500) is undervalued or overvalued. The ratio is equal to the Current Price of the SP 500 Index divided by the average inflation-adjusted Earnings of the S&P 500 over the prior 10 years.

S&P 500 Shiller CAPE Ratio (1945-2023)

The Shiller P/E ratio is an important measure of the valuation of the stock market. Based on historical data, it can be seen that the average Shiller P/E ratio was 14.48 between the years 1900 and 1980. However, in the next 40 years, from 1981 to 2020, the average ratio changed to 22.64.

The highest Shiller P/E ratio ever recorded was 43.77 in the year 2000, which was after the market crash, on the other hand, the lowest Shiller P/E ratio was 5.12, which was observed in the year 1921.

Global CAPE Ratios By Country

As of December 2022, the Current Global Shiller P/E ratio (CAPE) of the stock market is 19.54. This number provides a snapshot of the current value of the World stock market.

Below you can check the Shiller PE Ratios (CAPE) of every large country in the world, which gives you insight into these countries’ market values and provides a possible glimpse into their future market developments.

Data Source – Siblisresearch

Note: However, taking a look at this indicator might be misleading since different nations follow different capital market development cycles. Therefore, comparing a country’s current ratio to its historical average would make sense.

Understand the Shiller P/E Ratio

The Price-Earnings Ratio is the one simple way to calculate current market valuation from Current Market Price/EPS. But those who have a financial background know that CAPE gives you a little more accuracy than the P/E Ratio. The Shiller PE ratio uses inflation-adjusted 10-year earnings data to minimize the impact of short-term earnings volatility and make long-term comparisons possible.

Shiller PE Ratio Formula = Current Price / Average Inflation-Adjusted 10-Year EPS

For Example The S&P 500 Index data on 2021

-> S&P 500 Price: $4,355.88

-> Inflation-adjusted EPS: $109.06

So the Shiller PE Ratio is = 39.94 ($4,355.88/$109.06)

The Shiller P/E ratio may better help you identify the valuation of S&P 500 companies that other valuation methods may miss. Low ratios imply that the stock market is possibly undervalued. On the other hand, High ratios are linked to expensive markets.

For example – The below image shows that Shiller PE Ratio is extremely high before and during the market crash:

But it’s not necessary, that the market reacts to the Shiller ratio. As an investor, you must analyze the overall market situation & every detail to make the best investment decisions, rather than relying on any single or group of indicators.

Shiller PE Ratio Vs PE Ratio

The formula for calculating the Shiller PE Ratio is similar to that of the PE ratio, except it divides the market value by a ten-year trailing average of actual earnings instead of dividing by one year’s earnings.

However, it is considered a more reasonable long-term measure of stock market valuation than the standard PE ratio because it eliminates the fluctuation of the ratio caused by the variation of profit margins during business cycles.

Note: Blog post is only for education purposes – not be constituted as investment advice.

FAQ’s

Q. Is Shiller’s PE Ratio a good indicator to value the stock market?

Yes! It’s a great indicator to calculate the market valuation. However, investors should consider alternatives like the yield curve, interest rates, margin debt, and buffet indicator instead of depending on one indicator.

Q. Which country has the highest CAPE ratio?

According to Dec 2022, India has the highest CAPE of 32.42

Q. Is Shiller’s PE Ratio better than PE Ratio?

The Shiller price/earnings ratio is a valuation indicator that accounts for cyclical changes in profit margins; as a result, this measure is less volatile than traditional price/earnings ratios due to the variation of profit margins during business cycles.

Q. What is an excellent Shiller PE Ratio?

An average & Median shiller PE Ratio could be around 15-16.