According to the The Shiller price-to-earnings (P/E) ratio is a P/E ratio based on the average inflation-adjusted earnings from the previous 10 years. Over 150 years of history, the Shiller P/E ratio for the S&P 500 has a mean (average) of 16.8 and a median of 15.8. Right now, the Shiller S&P ratio for the S&P 500 is 34.5 — more than double its historic average. Source
When looking back, there have only been five times in history where the S&P 500 has maintained a move above a P/E of 30:
1929: After the Black Tuesday crash, the iconic Dow Jones Industrial Average (DJINDICES:DJI) went on to lose approximately 89% of its value.
1997-2000: Before the dot-com bubble burst, the Shiller P/E ratio for the S&P 500 hit an all-time high of 44.2. Nearly half the value of the S&P 500 was wiped away after the dot-com bubble burst, with the Nasdaq Composite (NASDAQINDEX:IXIC) hit even harder. Q3
2018: Throughout much of the third quarter of 2018, the Shiller P/E ratio sat above 30. This was followed by a fourth quarter swoon that saw the S&P 500 lose as much as 19.8%.
Q4 2019/Q1 2020: Prior to the coronavirus crash in the first quarter of 2020, the Shiller P/E ratio had, again, crossed above 30. The S&P 500 lost 34% in 33 calendar days during the COVID-19 chaos of February and March.
Q3 2020-Current: To be determined.
Historically, when the Shiller P/E ratio for the S&P 500 gets above 30, bad things happen.
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