As 26-Year Stock Market Milestone Approaches, History Points to What Comes Next

The last time the Shiller P/E ratio, also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio, was this high, Bill Clinton was president. In July 2026, the Shiller CAPE ratio hit 40.91, the highest since August 2000, almost 26 years ago.

For perspective, the median CAPE ratio since 2000 is roughly 27. Over the past 50 years, it's been around 20, and the long-term average dating back to the 1870s is 17. The highest it ever reached was 44.19 in November of 1999.

So, we are clearly in unusual times, but why does this matter, and what happens next?

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Shiller P/E hits 26-year high

The Shiller CAPE ratio is considered by many to be the truest measure of the valuation of the stock market. Rather than taking a 12-month snapshot, the CAPE ratio (invented by economist Robert J. Shiller) gauges the earnings of the S&P 500 in relation to its price over the past 10 years, with figures adjusted for inflation. This provides a longer-term look at the valuation of large-cap stocks, smoothing out any short-term spikes or dips.

If you look back at history, you can learn a few things about what happens when the CAPE ratio spikes.

In July of 1929, the Shiller P/E ratio jumped to a then all-time high of 31. Stocks soared in the Roaring '20s, spurred on by the Second Industrial Revolution. But what followed was a four-year bear market amid the Great Depression.

The next time it climbed over 30 was in the late 1990s during the dot-com boom. It topped 30 in May 1997 but kept rising until peaking at 44.19 in November 1999. During this time, the market had one of its best runs ever, with annual returns of more than 20% for five years from 1995 through 1999.

But what followed was a three-year bear market from 2000 to 2002 when the dot-com bubble burst.

What happens now?

Since 2000, the CAPE ratio has generally been higher, particularly over the past 15 years or so. This period has featured low interest rates and strong technology-based corporate earnings, both of which have helped to elevate valuations at the mean.

The CAPE ratio climbed higher than normal in the post-pandemic tech boom that ran from April 2020 until October 2021 when the CAPE ratio peaked at 38.58. What followed was the bear market that ran from late 2021 through 2022, when the Nasdaq sank about 33% and the S&P 500 fell about 19%.

Markets have rebounded since then with four straight years of double-digit annual returns, including 2026, with the S&P 500 up about 10% as of Aug. 3. This surge has been largely fueled by the artificial intelligence (AI) revolution, which is driving innovation, efficiencies, new forms of computing, and huge corporate profits.

If this is anything like the dot-com boom or past Shiller spikes, a market crash will follow. Will it be a multiyear bear market like the dot-com bust or something shorter in duration, but steeper? Or will it be a longer period marred by extreme volatility?

It's really hard to predict because this boom is very different from the 1990s boom, driven more by real earnings and less by speculative stocks with no real earnings. That means it could carry a higher P/E ratio based on strong earnings. Could this be a new normal?

I'm not going to make any predictions, but it is clearly important to know your history and be prepared.

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