Buffett Warns S&P 500 at 40.6 CAPE Signals 30% 3-Year Drop Risk
Updated
Updated · The Motley Fool · Aug 22
Buffett Warns S&P 500 at 40.6 CAPE Signals 30% 3-Year Drop Risk
3 articles · Updated · The Motley Fool · Aug 22
Summary
July’s 40.6 CAPE reading put the S&P 500 at its highest valuation since September 2000, reinforcing Buffett’s warning that investors are in a “gambling mood.”
Historical data behind the Shiller metric show the index has never posted a positive three-year return after a monthly CAPE above 40, with an average decline of 30% over that span.
Only 30 monthly readings above 40 have occurred since 1957—about 3% of the time—making current valuations unusually stretched by long-run standards.
AI-driven earnings could still blunt the warning: S&P 500 companies are forecast to deliver 50% second-quarter profit growth, which could let prices keep rising as valuations normalize.