# Shiller CAPE: what the cyclically adjusted P/E tells you

> How the Shiller CAPE is built, why it compares prices with ten years of real earnings, and how Anacleto turns it into a signal with rolling thresholds.

Updated 2026-10-17 · https://anacleto-zb7h.onrender.com/guides/shiller-cape

The **CAPE** (cyclically adjusted price-to-earnings ratio), popularised by Robert Shiller, divides the price of the
S&P 500 by the average of the last **ten years of earnings**, adjusted for inflation. Using a decade of earnings
instead of one year smooths out booms and recessions, so the ratio reflects how much investors are paying for a
normal year of profits.

## Why it matters

Over long periods a high CAPE has been followed, on average, by lower returns over the next ten years, and a low CAPE
by higher ones. The relationship is loose over a few months and stronger over a decade: the CAPE says little about
next year and something about the next ten.

## How Anacleto reads it

A fixed threshold would have flagged US equities as expensive almost continuously since the 1990s, because the
average level of the ratio has drifted up (lower interest rates, different accounting, a different mix of companies).
Anacleto therefore uses **rolling thresholds** computed on the previous **30 years**:

- above the **85th percentile** of that window the thermometer is red (expensive);
- below the **30th percentile** it is green (cheap);
- in between it is neutral.

The CAPE carries a weight of **1.5** in the sum of signals, the other thermometers 1. Data: Shiller's monthly series,
updated once a day by the shared job.

## Limits

The CAPE is US-only (S&P 500), while a world ETF also holds Europe, Japan and emerging markets. Historical earnings in
Shiller's file are interpolated, so a back-test using them knows slightly more than an investor knew at the time.
See [how the rules turn signals into weights](https://anacleto-zb7h.onrender.com/guides/rules-engine).