The Shiller P/E compares the price of a broad market index, such as the S&P 500 (SNPINDEX: ^GSPC), to its average inflation-adjusted earnings per share over the past 10 years. Its purpose is to give investors a long-term sense of whether the index looks expensive (or cheap) by smoothing out short-term profit swings.
The CAPE ratio was one of the metrics that helped Shiller identify the dot-com bubble just before it popped in March 2000. Now, in December 2025, the market is back in the same range, which has some investors feeling very, very uneasy.
The CAPE ratio may be flashing a warning sign
Since the early 1870s, the Shiller P/E has historically been in the double-digit range, yet only twice has it exceeded 40.
The first was during the dot-com bubble, when the Shiller P/E reached as high as 44 before the market crumbled.
The second is happening right now. After a strong 2025 performance, fueled by artificial intelligence and the Magnificent Seven, the S&P 500's Shiller P/E has been hovering around 39 to 40.
"Meta, Microsoft, Amazon and others are spending tens of billions of dollars to build or lease hyperscale data centres that may define the next phase of computing. In fact, it most likely will. But this exponential, debt-funded capex also has the hallmarks of a late-cycle surge in spending that can trigger multiple re-ratings and credit stress.
History rarely rewards lenders who finance capital-intensive growth booms at their peak. In the late 1990s, telecom companies borrowed heavily to lay fibre-optic cables, confident that data demand would ensure adequate returns. Although the infrastructure transformed the economy, it generated little return on investment for years.
In the mid-2000s, wildcatters levered up to chase $100 oil. The shale revolution reshaped US energy production, yet the companies behind the build-out still endured long periods of weak returns and balance-sheet pressure. Both episodes ended the same way: overcapacity, writedowns and years of debt overhang, despite laying the groundwork for genuine economic change."
Not really surprising that the debt is greater than cash on hand. The buildout has gotten really extreme at this point. Basically eating everything in economy from credit to RAM.
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