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Is the stock market overvalued? Four measures, live

Even after November’s sell-off, stocks look expensive against history. Here’s the evidence, and why expensive doesn’t tell you when a fall will come.

LemonTrades·Guides
The title of this post in white over a dim photo of the New York Stock Exchange floor.

Photo: Library of Congress (public domain)

TL;DR

  • By most history-based measures, yes. The S&P 500’s P/E of about 25 compares with a long-run average of about 16, and the Shiller CAPE of about 39 compares with about 17.
  • The S&P 500’s earnings yield of about 4% is below the 10-year Treasury’s, so stocks pay you little extra for their risk.
  • That doesn’t time a fall. Stocks have stayed expensive for years, and strong profits can make today’s prices easier to justify.
  • LemonTrades warns you before the data that moves stocks, and tells you what moved them, as it happens.

Stocks just had their worst day since April 2025, and they’re still expensive by the usual yardsticks. Here’s how they measure up right now.

MeasureNowLong-run average
S&P 500live––
P/E ratioprice ÷ last 12 months’ earnings–About 16
Shiller CAPEprice ÷ 10 years’ inflation-adjusted earnings–About 17
10-year Treasury yieldthe safe alternative–%–
Back to the record close7,818.93, October 6––

Live; the two ratios use earnings from Multpl’s November 5 figures (P/E 25.06, CAPE 38.79). Prices: the stock market live.

The four measures, and what they say

  1. P/E ratio: about 25, against an average of about 16 since the 1870s. Expensive.
  2. Shiller CAPE: about 39. The only time it was clearly higher was the dot-com peak, at 44 in December 1999. Very expensive.
  3. Buffett indicator: total US stock value against the size of the economy, also near record levels. See Warren Buffett’s market warning.
  4. Earnings yield vs bonds: flip the P/E and stocks “yield” about 4%, while the 10-year Treasury pays more. Investors aren’t being paid extra for stock risk.

The case that it’s fine

  • Profits are strong. The biggest companies earn far more on what they sell than companies did decades ago, which supports higher prices.
  • Looking ahead helps. On next year’s expected earnings, the P/E is much lower, as long as those forecasts hold up.
  • The economy is growing: GDP rose 3.4% in the third quarter. See is America in a recession.

Why “overvalued” doesn’t mean “sell”

Valuation is a poor timer. The CAPE has been above average for most of the past 30 years, and people who sold because of it missed big gains. Where it has helped is with long-run expectations: high starting valuations have tended to go with lower returns over the following 10 years, and big drops have tended to be deeper from high levels.

What to do about it

  • Don’t put money you need within five years entirely in stocks.
  • Spread out, including outside the biggest US tech names. See how to evaluate investment risks.
  • If you invest monthly, keep going. You buy more shares when prices fall.

More on the recent drop: is the market crashing, and on the year ahead: S&P 500 predictions.

Sources

Education, not financial advice. All investing involves risk, including the loss of your money. See our disclaimer.

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