The S&P 500's Shiller P/E ratio has climbed to 40.7, its highest level since the dot-com bubble. Bear markets are an inevitable part of the stock market cycle, but nobody can say when the next one arrives.
The S&P 500's Shiller price-to-earnings ratio has reached 40.7, the highest reading since the dot-com bubble peaked at 44.2 in November 1999. That earlier peak preceded a decline that nearly halved the index's value. The ratio, also known as the cyclically adjusted P/E (CAPE) ratio, divides the index's current level against average inflation-adjusted earnings over the past decade.
An index built on AI-driven gains
The index has more than doubled in value since the start of 2023. That run has pushed the three largest ETFs by assets under management — all tracking the S&P 500 — to roughly $2.7 trillion in combined AUM as of Sept. 11. The index itself traded at 7,656.98, up 0.86% (+65.28 points).
Unlike the dot-com era, when speculation on unproven internet businesses drove prices, the current run is fueled by the artificial intelligence boom. Apple became the first trillion-dollar company on Aug. 2, 2018, and now 14 public companies are worth at least a trillion dollars. Two of those companies are worth $4 trillion, and Nvidia is worth $5 trillion as of market close on Sept. 11.
Bear markets remain inevitable
A bear market officially begins once the index drops 20% or more from a recent high, and history shows they always eventually arrive, though their timing and severity vary widely. Bear markets tend to be shorter than the bull markets that precede them, resetting valuations after long stretches when prices can outrun fundamentals.
Nobody can predict when the next downturn will start — it could take days, months, or years. Still, history's lesson favors investors who stay invested through the cycle rather than trying to time an eventual pullback.
Source: The Motley Fool
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