Shiller CAPE Regime
Long-horizon valuation framework — the cyclically-adjusted price-to-earnings ratio orders equity-market regimes from cheap to expensive, with implications for forward 10-year returns.
Robert Shiller
Overview
Robert Shiller’s cyclically-adjusted P/E (CAPE) ratio smooths earnings over ten years to remove cycle noise. It is the most empirically grounded long-horizon valuation framework — high CAPE has predicted low forward returns and vice versa across more than a century of data.
Stages
Four valuation regimes — Cheap, Fair, Expensive, Extreme. The framework is slow-moving; regime changes typically take quarters, not weeks. The forward-return implications are 10-year, not 1-year.
Reading it
A high-confidence Extreme reading is not a market-timing signal — Shiller would resist that — but a posture statement: future 10-year returns are likely to be below historical average. Stewards making capital allocation decisions over multi-year horizons should weight CAPE highly.
Phases
- Stage 1
Cheap
Current readCAPE below long-run median. Forward 10-year returns historically above average.
- Stage 2
Fair
CAPE near long-run median. Returns near historical average.
- Stage 3
Expensive
CAPE meaningfully above median. Returns historically below average.
- Stage 4
Extreme
CAPE in top decile of historical distribution. Returns historically lowest.
Indicators
| Signal | Direction | Weight | Latest | Stage |
|---|---|---|---|---|
Nasdaq Composite fred_nasdaq | elevated | 0.30 | — | — all |
Dow Jones Industrial Average fred_djia | elevated | 0.22 | — | — all |
Investment Grade OAS fred_ig_oas | depressed | 0.14 | — | — all |
VIX fred_vix | depressed | 0.12 | — | — all |
High Yield OAS fred_hy_oas | depressed | 0.12 | — | — all |
Fed Balance Sheet (WALCL) fred_fed_balance_sheet | rising | 0.10 | — | — all |
Current reading
Cheap
How Palanor watches this
Numen scores this schema continuously against the indicators above, joining the latest signal observations to the stage signatures and producing a weighted lean toward the stage that best fits the current composition. The global reading on this page is the public version. Stewards inside Palanor see the same schema tuned to their organization's strategic profile, with Numen commentary calibrated to their role and disposition.