Risk Methodology

What this page measures

The Cyclically Adjusted Price-to-Earnings ratio (CAPE), introduced by Robert Shiller and John Campbell in 1988, divides the current real price of the S&P 500 by the average of its inflation-adjusted earnings over the previous 10 years. Averaging a full business cycle of earnings removes the distortion a single strong or collapsed quarter creates.

How we compute it

CAPE = real price / mean(last 120 months of real earnings)

realEarnings_i = nominalEarnings_i × (CPI_today / CPI_i)

Update cadence

The price leg updates every trading day. The earnings baseline updates monthly, when Shiller publishes the next month of his series. Anyone telling you a CAPE reading changes daily in both terms is describing something other than CAPE.

Signal thresholds

• Green — CAPE below 25
• Yellow — CAPE between 25 and 35
• Red — CAPE at or above 35
• Danger zone — CAPE at or above 40, a level reached in only three episodes since 1881

What CAPE does not do

CAPE has almost no power to predict when a market turns. Readings have stayed elevated for years. Its documented relationship is with subsequent ten-year returns — higher readings have historically been followed by lower long-run returns. Every number on this site should be read in that light, including ours.

The long-run mean

We use 17.75 as the arithmetic mean of the series since 1881. It is recomputed from the source data on every sync rather than hardcoded from memory.