Stocks Still Had a Good Year Left the Last Time This Valuation Gauge Broke 40

November 2, 2026 - 08:41

The Shiller cyclically adjusted price-to-earnings ratio for the S&P 500 has climbed above 40, a level reached only one other time in the history of the gauge. That earlier episode came during the dot-com boom, and the comparison is drawing attention from investors who watch long-term valuation measures.

The Shiller P/E, which smooths earnings over ten years to account for business cycles, is now in territory that has historically signaled rich pricing. The only prior breach of 40 occurred in the late 1990s, near the peak of the technology bubble. What followed is a familiar story: the index posted one more strong year before the rally ended, then struggled for an extended stretch.

For investors, the key question is not whether the market can keep rising in the near term. History suggests it can. The harder question concerns the next decade. After the last break above 40, returns over the following ten years were weak, with the index taking years to recover its prior highs.

Valuation measures are not timing tools, and a high reading can persist for a long while. Still, the current level places the market in rare company, and the historical precedent offers a reminder that elevated prices often come with lower long-run expectations.