All three major U.S. stock indexes have climbed throughout 2026. As of Aug. 12, the S&P 500 (SNPINDEX: ^GSPC) has gained about 13%, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) and Dow Jones Industrial Average (DJINDICES: ^DJI) have advanced 14% and 12%, respectively. All three indexes trade near record levels even as the macro backdrop remains unsettled by stubborn inflation, a leadership transition at the Federal Reserve, and ongoing tensions in the Middle East centered on the Iran war.
This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.
Continue » Resilient corporate earnings -- particularly those tied to artificial intelligence (AI) developers and infrastructure spending -- have managed to satisfy investors, pushing valuations higher despite these headwinds. During the mid-1990s, Yale economist Robert Shiller popularized a valuation tool known as the cyclically adjusted price-to-earnings (CAPE) ratio. The Shiller CAPE ratio measures valuation by dividing the current price of the S&P 500 by the average of the prior 10 years of inflation-adjusted earnings.
The idea behind the CAPE ratio is that a single year of earnings can be distorted by temporary economic swings. Unlike a conventional price-to-earnings multiple (P/E), the CAPE ratio smooths out economic fluctuations to assess longer-term valuation extremes. Although the concept has only gained attention over the last few decades, economists have reconstructed CAPE readings using historical prices and earnings data -- extending the entire data set back to 1871.
As of mid-2026, the CAPE ratio stands at 41 -- more than double the long-term average of 17.8. Over its full history, the CAPE ratio has surpassed 30 and remained there for at least two consecutive months on only six occasions (including now) during sustained bull markets. Let's explore what happened in each case.
The first instance occurred between August and September 1929. As illustrated in the chart above, the subsequent stock market crash ushered in the Great Depression. During this period, the Dow Jones fell nearly 89% from peak to trough.
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