Valuation regime
Valuation
What it is
Overall valuation level of the US market measured primarily via Shiller CAPE (Cyclically Adjusted P/E), which smooths earnings over 10 years to neutralize cycles. Helps situate long-term return expectations.
How to read it
A high CAPE (>30) historically signals lower 10-year forward returns — not immediate, but at the long horizon. A low CAPE (<15) signals the opposite. CAPE DOESN'T TIME the market short-term: it can stay high for years before a correction.
Common reference points
- Bargain — high future returns likelyCAPE < 15
- AverageCAPE 15 – 25
- ExpensiveCAPE 25 – 35
- Overvaluation — low future returns likelyCAPE > 35
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
CAPE is criticized for including recession earnings (2008-2009) that stay in the 10-year average. Structural norms have also evolved (more tech, higher margins, lower rates). Read as trend indicator, not absolute level.
Other measures — Macro
Educational content. Polaris is not a registered investment adviser and makes no recommendation.