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<\/a> Image source: Getty Images. <\/p>\nMissed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1\/100th the size of Nvidia. Continue \u00bb<\/a> <\/p>\n This may sound like a warning that a market crash is approaching. However, the CAPE ratio is more useful for estimating long-term return potential than for predicting when stocks will fall. <\/p>\n A high valuation does not mean stocks are about to fall <\/p>\n The CAPE ratio compares the inflation-adjusted value of the S&P 500<\/a> with average inflation-adjusted earnings over the previous 10 years. Using a 10-year earnings average helps reduce the impact of short-term swings in corporate profits and provides a longer-term view of market valuation. <\/p>\n The current CAPE ratio is close to the record 44.19 reached in December 1999. However, it had already moved above 40 in January 1999 and remained above that level through September 2000. A CAPE ratio above 40 is better viewed as a sign of stretched long-term valuation than as a reliable signal that stocks are close to a near-term peak. <\/p>\n According to Vanguard, valuation levels have limited utility for forecasting short-term market returns. They become more useful at periods approaching 10 years:. <\/p>\n Why the CAPE ratio and forward P\/E are telling different stories <\/p>\n The S&P 500 is valued at 19.8 times forward earnings, down from roughly 22.2 in early January. Even with the index close to record levels, its valuation based on expected earnings has come down. <\/p>\n Strong earnings may have helped market valuations. According to FactSet, the S&P 500’s third-quarter bottom-up earnings-per-share (EPS) estimate increased 1.2% during July and August. FactSet defines bottom-up EPS as the median of EPS estimates across all companies in the index. On the other hand, over the past five years, this estimate has declined by an average of 1.7% during the first two months of a quarter. <\/p>\n Analysts also raised the S&P 500’s full-year bottom-up EPS estimate by 6.1%, from $340.49 to $361.38, between June 30 and Aug. 31. Seven of the 11 S&P 500 sectors saw their full-year estimates increase over the same period. <\/p>\n So the CAPE ratio and forward price-to-earnings (P\/E) can send different signals. Forward P\/E uses expected earnings for the coming year, so stronger profit forecasts can quickly reduce the multiple even if stock prices remain high. The CAPE ratio moves more slowly because it averages 10 years of inflation-adjusted earnings. <\/p>\n What this rare pattern signals for investors <\/p>\n Today’s elevated valuations suggest that long-term returns may be lower than investors have historically earned. <\/p>\n In fact, according to Vanguard Capital Markets Model forecasts, annualized U.S. equity returns are expected to be in the range of 4.2% to 6.2% over the next 10 years. This is lower than the previous estimate of 4.9% to 6.9%, as U.S. equity valuations have become more stretched. <\/p>\n Investors should not avoid stocks<\/a>. Strong earnings could continue supporting the market for years. However, unusually high starting valuations leave less room for earnings disappointments and make the price investors pay increasingly important. <\/p>\n Should you buy stock in S&P 500 Index right now? <\/p>\n Before you buy stock in S&P 500 Index, consider this: <\/p>\n The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks<\/a> for investors to buy now\u2026 and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. <\/p>\n Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $409,917!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,341,724!* <\/p>\n Now, it’s worth noting Stock Advisor’s total average return is 942% \u2014 a market-crushing outperformance compared to 211% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. <\/p>\n See the 10 stocks \u00bb<\/a> <\/p>\n *Stock Advisor returns as of September 12, 2026. <\/p>\n Manali Pradhan, CFA<\/a> has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy<\/a>. <\/p>\n