Market Ratios
S&P 500 valuation ratios from Robert Shiller’s dataset (Yale) and the nominal GDP gap from BEA/CBO. PE and CAPE track how expensive the market is relative to earnings; the earnings yield shows the implied return from corporate profits; the GDP gap measures whether the economy is running above or below its potential output.
S&P 500 P/E Ratio
Price-to-earnings ratio using trailing 12-month as-reported earnings. Spikes often reflect collapsing earnings rather than soaring prices (e.g. 2009). The long-run average is roughly 16.
Shiller P/E (CAPE) Ratio
Cyclically Adjusted Price-to-Earnings ratio: real S&P price divided by 10-year average of real earnings. Smooths the business cycle and is a better predictor of long-term returns. The long-run average is roughly 17; readings above 30 have historically preceded poor subsequent returns.
S&P 500 Earnings Yield
Inverse of the P/E ratio (E/P × 100). Represents the yield an investor gets from corporate earnings. When the earnings yield falls below the 10-year Treasury yield, equities are relatively expensive vs bonds; when above, equities offer a risk premium.
Nominal GDP Gap
Percentage difference between actual nominal GDP and CBO potential nominal GDP. Positive values indicate the economy is running above potential; negative values signal a slack economy. Dashed line shows a projection based on recent GDP growth trends vs CBO potential estimates.
World Market Cap / M2 (4 Economies)
Average ratio of stock market indices to broad money supply (M2/M3) across the US, Euro Area, Japan, and China. Each country's index is normalized, then divided by its normalized M2; the four ratios are averaged. A rising ratio means markets are outpacing money supply growth — signalling liquidity-driven valuations. A falling ratio suggests money supply is growing faster than asset prices.