If you’ve ever wondered how to tell if the stock market is overpriced or a bargain, the Shiller P/E ratio is a tool you’ll want to know about. It’s a popular way to measure the value of stocks, and it’s easier to understand than it sounds. In this article, we’ll break it down step-by-step: how it’s calculated, where you can find it, if it’s used beyond the S&P 500, and how to use it to guess what returns might look like. Let’s dive in!
1 How Is the Shiller P/E Ratio Calculated?
The Shiller P/E ratio, also called the Cyclically Adjusted Price-to-Earnings (CAPE) ratio, was created by economist Robert Shiller. Unlike the regular P/E ratio, which just looks at a stock’s current price divided by its earnings from the past year, the Shiller version takes a longer view to smooth out the ups and downs.
Here’s how it works in simple steps:
- Step 1: Take the price of the S&P 500 (or another index or stock) right now.
- Step 2: Gather the earnings per share (EPS) for the past 10 years.
- Step 3: Adjust those earnings for inflation so they’re all in today’s dollars (this keeps things fair over time).
- Step 4: Average those 10 years of adjusted earnings.
- Step 5: Divide the current price by that 10-year average.
For example, if the S&P 500 is at 5,000 and its 10-year average inflation-adjusted earnings is 150, the Shiller P/E would be 5,000 divided by 150 = 33.3. That’s it! The idea is to avoid getting thrown off by short-term booms or busts in earnings.
2 Where Can You Find It?
You don’t have to crunch the numbers yourself—plenty of free resources track the Shiller P/E ratio for you. Here are some great places to look:
- Multpl : A simple site with the current Shiller P/E and a chart going back over 100 years.
- GuruFocus: Offers the latest Shiller P/E for the S&P 500, plus other market insights.
3 Does It Exist for Other Markets?
Yes! While it’s most famous for the S&P 500, the Shiller P/E has been calculated for other markets too. Researchers and financial sites have applied it to indexes like the Dow Jones, NASDAQ, and even international markets such as the UK’s FTSE 100, Japan’s Nikkei 225, and emerging markets. However, the data might not be as widely available or go back as far as it does for the S&P 500. Sites like GuruFocus or research papers from economists often include CAPE ratios for these other markets if you dig a little.
4 How to Use It: Ranges and Expected Returns
So, what does the Shiller P/E tell us? It’s like a thermometer for the stock market—higher numbers suggest stocks are expensive (overvalued), and lower numbers hint they’re cheap (undervalued). Over time, it’s been linked to future returns: when it’s high, expect lower returns over the next decade; when it’s low, expect higher ones. Here’s a simple guide:
Historical Average: Since the late 1800s, the Shiller P/E for the S&P 500 has averaged around 16-17. Think of this as “normal.”
Ranges:
- Below 15: Stocks are cheap! This has happened during big crashes, like 2008-2009 when it dipped to 13.
- 15-25: Fair value territory—neither a steal nor overpriced. This is where it sits most of the time.
- 25-35: Getting expensive. Investors are paying a premium, like in the mid-2010s or today (it’s around 33-35 in 2025).
- Above 35: Very high! It hit 44 in 1999 before the dot-com crash and has only topped 35 a few times (1929, 2000, and recently).
Expected Returns Per Year:
- Below 15: Historically, returns over the next 10-20 years averaged 8-10% per year or more.
- 15-25: Returns drop to about 5-7% annually—still decent but not amazing.
- 25-35: Expect 2-4% per year. That’s where we are now—modest growth ahead.
- Above 35: Returns could be 0-2% or even negative, like after the 2000 peak.
For example, with a Shiller P/E of 33, history suggests S&P 500 returns might average 3-4% per year for the next decade—not terrible, but not the 10% many hope for. It’s a clue, not a crystal ball, so use it alongside other info.