Ah, 1871. Those were different times, weren't they? The Second Industrial Revolution was gathering steam, the telegraph was all the rage in technology, and J.P. Morgan (the financier) was getting the ball rolling on a firm that would eventually bear his name.
Aside from these milestones, 1871 is significant for another reason: It's the first year in economist Robert Shiller's long-running U.S. stock market dataset, which also serves as the historical backbone for the Shiller price-to-earnings (P/E), also known as the CAPE ratio.
Image source: Getty Images.
The Shiller P/E compares the price of a broad market index, such as the S&P 500 (^GSPC 1.14%), to its average inflation-adjusted earnings per share over the past 10 years. Its purpose is to give investors a long-term sense of whether the index looks expensive (or cheap) by smoothing out short-term profit swings.
The CAPE ratio was one of the metrics that helped Shiller identify the dot-com bubble just before it popped in March 2000. Now, in December 2025, the market is back in the same range, which has some investors feeling very, very uneasy.
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Key Data Points
The CAPE ratio may be flashing a warning sign
Since the early 1870s, the Shiller P/E has historically been in the double-digit range, yet only twice has it exceeded 40.
The first was during the dot-com bubble, when the Shiller P/E reached as high as 44 before the market crumbled.
The second is happening right now. After a strong 2025 performance, fueled by artificial intelligence and the Magnificent Seven, the S&P 500's Shiller P/E has been hovering around 39 to 40.
Data by YCharts.
As you can see from the graph above, very high CAPE readings don't last very long, and they're historically followed by sharp reversals.
Of course, that doesn't mean the market is about to repeat 2000. But it may be a sign that irrational exuberance may be ahead of fundamentals. It's a reminder, as we approach 2026, to be selective and patient, though certainly not a call to abandon high-quality stocks altogether.
