The S&P 500 has doubled after falling nearly 20% in 2022, but the CAPE ratio, which measures valuation against inflation-adjusted earnings, crossed 40 again in May this year, while the S&P 500 is up 12% and the Nasdaq-100 up 16% so far this year. Since 1879 the CAPE has averaged 17.8, and it has crossed 40 only twice: first in January 1999, reaching a record 44 in January 2000. The S&P 500 gained 20% in 1999 before losing more than 40% over the following three years, while the Nasdaq-100 lost almost three-quarters. Since the market bottomed in 2003, the S&P 500 has gained 771%, despite drops of more than 57% in 2008 and 34% during the COVID-19 crash. The article advises investors to own resilient stocks, be prepared to hold through downturns, and avoid panic selling.
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Related tickers and likely impact
QQQ
▼ Likely negativeInvesco QQQ Trust
Relevance: medium
| Market | US stocks |
|---|---|
| Sector | ETF |
| Close on 10/20/2026 | 717.63 |
| Change that session | -0.10% |
SPY
▼ Likely negativeSPDR S&P 500 ETF
Relevance: medium
| Market | US stocks |
|---|---|
| Sector | ETF |
| Close on 10/20/2026 | 769.05 |
| Change that session | +0.34% |
Impact is scored by AI from the headline and may be wrong. It is not investment advice.
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The CAPE ratio, a cyclically adjusted P/E measure, has crossed 40 for only the second time, after first doing so in 1999 and peaking at 44 in 2000. Its average since 1879 is 17.8. Even so, the S&P 500 is up 12% and the Nasdaq-100 up 16% this year. The article recalls the dot-com bust, when the S&P 500 lost more than 40% over three years and the Nasdaq-100 almost three-quarters. It notes bear markets have historically been much shorter than bull markets, and argues investors should hold resilient stocks rather than panic sell; since the 2003 bottom, the S&P 500 has gained 771%, despite a 57% fall in 2008 and a 34% drop in the COVID-19 crash.
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The S&P 500 has gained about 100% over the past three calendar years plus 2026 to date, driven largely by enthusiasm for AI, with Nvidia up 900% over five years and Micron up 200% this year alone. Amazon, Microsoft, Alphabet and Meta are expected to spend over $700 billion this year, raising doubts about whether the revenue will justify it. The Buffett indicator, which compares the value of U.S. listed companies with GDP, has reached 238%, its highest ever, versus about 148% during the dot-com bubble. The article notes that the S&P 500 fell after past peaks of this indicator in 2000 and late 2021, but recovered and gained over the following years. The author argues that investors should hold their positions for the long term rather than leave the market.
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