S&P 500 Shiller CAPE Ratio
In Yale economist and Nobel laureate Robert Shiller’s book Irrational Exuberance, he introduced a price/earnings ratio for the S&P 500 that averages inflation-adjusted earnings over the prior ten year. Today’s Shiller P/E multiples are the highest they have been in two decades.
Dot com bubble: 44
Today: 35
Warren Buffett’s favorite valuation metric, a simple ratio of the total U.S. stock market capitalization to annual gross domestic product, effectively gives market watchers a reference point for current prices.
The current stock market value of $42 trillion, compares to annual GDP of $21 trillion. One year after the dot-com bubble popped, Buffett said the unprecedented highs should have served as a strong warning signal. "If the ratio approaches 200%—as it did in 1999 and a part of 2000—you are playing with fire," said Buffett.
Current Buffet Indicator: 195%
Dot com bubble Indicator: 159%
Margin debt balances have exploded on Wall Street, recently hitting an all-time high of $778 billion—nearly 37 times the $21 billion investors held in March 2000. However, the more important metric to focus on is margin debt to cash in customer accounts. It’s currently at 72% more debt than cash, versus 79% at the peak of the dot-com bubble. Speculation is contagious