US and UK stock markets show overvaluation risk as CAPE ratios surge

The Shiller cyclically adjusted price‑to‑earnings (CAPE) ratio for the S&P 500 has risen to about 41.4, the highest level in a quarter‑century and close to the peak seen before the dot‑com bubble. Analysts warn that such extreme valuations make the market vulnerable to a sharp correction that could halve share prices, with possible spill‑over effects on banks, pension funds and the broader economy.

In contrast, the FTSE 100’s CAPE sits near 20, reflecting its heavier weighting toward energy, financials and materials rather than technology. This lower multiple offers some insulation if the correction centers on inflated tech valuations, though UK investors remain exposed to global shocks. Commentary also notes that the recent AI boom, despite high expectations, may act as a trigger for a market pull‑back if growth projections fail to materialise.