S&P 500 valuation hits 155‑year high as US inflation outlook tightens

The S&P 500’s Shiller CAPE ratio surged above 41, a level seen only once in the last 155 years during the dot‑com bubble. The metric, which compares inflation‑adjusted earnings to price, now far exceeds its long‑run average of about 17, signalling that stocks are extremely expensive and that a correction could follow.

At the same time, the Cleveland Federal Reserve’s latest inflation nowcast projects the Consumer Price Index to run at roughly 3.5% in July, after a recent dip in crude‑oil prices following de‑escalation in U.S.–Iran tensions. Earlier in the year, a Strait of Hormuz shutdown drove oil prices up 70%, pushing U.S. inflation to a three‑year high of 4.2% in May. The market is also wrestling with AI‑driven optimism, as tech giants pour nearly $700 billion into AI projects, yet investors remain cautious amid higher‑for‑long interest‑rate expectations and a new Federal Reserve chair, Kevin Warsh.

Together, the valuation warning and lingering inflation pressures suggest heightened risk for equity investors and could shape upcoming monetary‑policy decisions.