Note. This content is published for educational and statistical purposes. It does not constitute investment advice under AMF / MiFID II regulations. Past performance does not guarantee future results.
What is the PE10 / CAPE?
The PE10, also known as the CAPE Ratio (Cyclically Adjusted Price-to-Earnings), was developed by Nobel Prize economist Robert Shiller. This indicator compares the current S&P 500 price to the average of real earnings (inflation-adjusted) over the past 10 years. With more than 140 years of historical data, it is one of the most reliable and studied valuation indicators.
In its classic version, the ratio is calculated on the S&P 500 using series published by Shiller. Earnings are inflation-adjusted via CPI, then averaged over ten years. The current price is then compared to this smoothed earnings base.
ONELIX publishes the reading logic and historical statistics of the signal, but not the full proprietary transformation. The guide below remains aligned with the interactive analysis level of detail.
Why adjust cyclically?
Corporate earnings fluctuate significantly according to economic cycles. In recession, they collapse temporarily (e.g., −90% in 2008-2009). In expansion, they can be artificially inflated by exceptional margins. The 10-year average smooths these cyclical variations and captures the normal earning capacity of companies through a complete economic cycle.
Long-term predictive power
The CAPE is recognized for its strong negative correlation (−0.7) with 10-year forward returns. The higher the CAPE today, the lower the returns over the next 10 years. This relationship has been verified over more than a century of Shiller data.
The ratio is expressed as an earnings multiple. The higher it is, the more expensive the market pays for a smoothed earnings base.
The PE10 / CAPE is a long-term valuation indicator. It describes a context of demanding or moderate prices, but it does not turn this context into an automatic market decision.
How the signal is built
Ratio calculation
The CAPE is calculated by dividing the real S&P 500 price by the average of real earnings (inflation-adjusted via CPI) over the past 10 years. This approach smooths cyclical fluctuations in earnings and captures the normal earning capacity of companies through a complete economic cycle. Data comes from Robert Shiller's work and covers more than 140 years of history.
Trend model and standard deviations
To identify significant deviations from historical norms, ONELIX uses rolling statistics calculated since 1950. The mean and standard deviation of CAPE are recalculated at each date by integrating all past observations. This approach ensures that normalization adapts to the evolution of the valuation regime over time, without look-ahead bias.
Normalized indicator (0–100%)
Based on these standard deviations, ONELIX develops a normalized indicator from 0 to 100% using a proprietary formula. This normalized indicator is the one displayed in the main dashboard and used for LIX calculation.
The exact normalization formula and certain robustness parameters are not published. The normalized indicator transforms standard deviations into an intuitive scale where 0% represents extreme undervaluation and 100% extreme overvaluation.
Historical reading
The chart below presents the raw value of the PE10 / CAPE from 1950 to year-end 2025.
PE10 / CAPE — S&P 500 price / ten-year average real earnings
Monthly values, January 1950 → December 2025
Sources: Robert Shiller, S&P 500, inflation-adjusted real earnings. Red bands: 15 major corrections tracked in ONELIX.
Notable historical episodes
Three periods saw the CAPE exceed 30, signaling extreme valuation zones:
- 1929: CAPE at 32.6, followed by the 1929 crash and Great Depression (−86%)
- 1999-2000: CAPE record at 44.2, followed by the dot-com bubble burst (−49%)
- 2021-2022: CAPE at 38.6, followed by the 2022 correction (−25%)
Historically, high CAPE levels often appear in periods when investors accept paying very dearly for normalized earnings — expected growth, low rates, high confidence or a more profitable sector composition.
The ONELIX reading of PE10 / CAPE
ONELIX reads the PE10 / CAPE as a long-term valuation indicator. It complements the Buffett Indicator (market cap / GDP), S&P Mean Reversion (trend deviation) and Earnings Yield Gap (equity/bond spread).
The normalized score transforms CAPE into an intuitive scale: 0% corresponds to extreme undervaluation, 100% to extreme overvaluation. This percentile facilitates comparison with the other LIX indicators.
Across 15 major corrections (≥19%) since 1962, the signal showed clear detection (≥75%) in 29% of cases (1998, 2000, 2022, 2025), moderate signal (60–75%) in 13% (2018, 2020), and remained low (<60%) in 60% — notably 1962, 1966, 1969, 1973, 1980, 1987, 1990, 2008, 2011.
The signal becomes more robust when it converges with the Buffett Indicator, Earnings Yield Gap, credit or volatility.
Product preview. Frozen historical capture of the ONELIX dashboard illustrating the PE10 / CAPE reading.
In the LIX composite score, PE10 / CAPE belongs to the Valuation family. The ONELIX methodology details normalization.
Limits and vigilance points
The PE10 / CAPE is robust as a historical reference, but it has important nuances.
- Imprecise timing: the CAPE can remain elevated for years (1996-2000: 5 years above 25).
- Accounting changes: GAAP standards have evolved, making historical comparisons less direct.
- Structural evolution: the composition of the S&P 500 has changed (more tech, less industry).
- Interest rates: low rates can justify higher CAPE values.
- Combined reading: CAPE should be cross-checked with credit, rates, leverage and volatility.
Despite these nuances, the CAPE remains one of the best indicators for evaluating long-term expected returns and identifying extreme risk zones — but it does not provide a date or magnitude for a future drawdown.
Explore the PE10 / CAPE in ONELIX
Interactive charts, drawdown statistics, historical zones and dedicated backtest.
Frequently asked questions
What does the PE10 / CAPE measure?
The cyclically adjusted price-to-earnings ratio of the S&P 500: real price divided by ten-year average real earnings, using Robert Shiller's data.
Why use ten-year average earnings?
This average reduces the impact of an exceptionally high or low year of profits and captures normal earning capacity through a complete cycle.
What is the difference with the Buffett Indicator?
The PE10 / CAPE compares prices to ten-year real average earnings. The Buffett Indicator compares total stock market capitalization to nominal GDP.
Can the PE10 / CAPE forecast corrections?
No. It contextualizes long-term valuations and expected returns, but it does not predict the timing of corrections on its own.
How does ONELIX turn the PE10 into a 0-100 score?
ONELIX computes rolling standard deviations of CAPE since 1950, then applies a proprietary formula to produce a normalized score integrated into the LIX.
Why can a high PE10 last for a long time?
Low rates, high profit margins or a favorable sector composition can sustain elevated multiples for several years.