CAPE before the 1929, 2000 and 2008 crashes: what the ratio showed

What did CAPE and valuation show before three big stock market crashes?

Valuation stood high at each peak. In September 1929 the average price-to-earnings ratio of S&P Composite stocks was 32.6, which Wikipedia calls clearly above historical norms. The CAPE series reached its maximum of 44.19 in December 1999. In 2014 Shiller listed 2007 among the periods when CAPE rose above 25.

The falls that followed were large: 89.2% for the Dow between 1929 and 1932, 78% for the Nasdaq Composite between March 2000 and October 2002, and 54% for the Dow between October 2007 and March 2009. High valuation sized the damage, and separate triggers set the dates. The sections below take each period in turn.

How expensive was the stock market before the 1929 crash?

The Dow peaked at 381.17 on 3 September 1929. The average price-to-earnings ratio of S&P Composite stocks stood at 32.6 that month. Note that this is a plain price-to-earnings ratio, a close cousin of CAPE, and Shiller later built the 10-year version to smooth the cycle. Margin buying added fuel, because investors stood to lose large sums if the market turned down.

Black Thursday, 24 October 1929, opened with a loss of 11% in value at the opening bell, and the Dow closed down only 2.09% after bankers bid on blue-chip stocks. On Black Tuesday, 29 October, the Dow fell 11.73%. Across the two days the total drop was 23.05%, and the fall was only starting.

How far did the stock market fall after the 1929 valuation peak?

The Dow closed at 41.22 on 8 July 1932, concluding an 89.2% loss in less than 3 years. A footnote in the same source cites a figure of 87.1% for the monthly series, so the range of 87% to 89% depends on the data. The scale of the fall dwarfs the two-day drop of October 1929.

The Dow did not regain its September 1929 peak close until 23 November 1954, 25 years later. A high starting valuation therefore cost more than a fast fall: it cost a generation of waiting. This is the strongest reason to treat CAPE as a measure of how much value rests on expectations.

What did CAPE show before the dot-com stock market crash of 2000?

The CAPE series reached 44.19 in December 1999, the maximum in the series on multpl.com. The Nasdaq Composite rose 400% between 1995 and 2000 and reached a price-earnings ratio of 200, against a peak of 80 for the Nikkei 225 in 1991. The Nasdaq Composite peaked on 10 March 2000 at 5,048.62.

Shiller published Irrational Exuberance on 15 March 2000, 5 days after the Nasdaq peak, and used CAPE to argue that markets were overvalued. The Nasdaq Composite then fell 78% by October 2002. The warning was right about the level of valuation, and the book appeared months before the turn rather than years.

What did CAPE and house prices show before the 2008 crash?

Shiller listed 2007 among the periods in which CAPE rose above 25. The Dow reached a closing high of 14,164.53 on 9 October 2007 and its low of 6,469.95 on 6 March 2009, a drop of 54% over 17 months. The 2005 edition of Irrational Exuberance warned that median home prices stood at 6 to 9 times median income in some areas.

The EQOS Asia study applied the same valuation logic to housing. US house prices rose 124% from 1997 to 2006, and the price-to-income ratio of 4.6 stood well above its average of 3.2 (EQOS Asia 2008 back-test, 2026). Valuation was high in both shares and homes, and the fall was deepest where leverage was highest.

What pattern links CAPE readings to the 1929, 2000 and 2008 falls?

Three links stand out. A high valuation preceded each fall. The depth of each fall was large, from 54% to 89.2%. The timing came from separate triggers: margin calls in 1929, a loss of confidence in technology shares in 2000, and a credit freeze in 2008. Valuation told readers how much could be lost, and other signals told them when.

The record also holds a warning about patience. The book Irrational Exuberance takes its title from a 1996 comment by Alan Greenspan, and the Nasdaq peaked in 2000, about 4 years later. Readers who sold on valuation alone in 1996 missed years of gains. Wikipedia notes that CAPE was never intended to predict crashes.

How can you use the CAPE history of 1929, 2000 and 2008 today?

Use the three peaks as a ruler. When the current CAPE sits near the 25 mark, ask what your plan does if prices fall by 54%, 78%, or 89.2%, and write down the answer. Pair the ruler with trigger signals such as the VIX and the yield curve. This page is general information, not investment advice.

A 30-minute pre-diagnostic with EQOS Asia applies the φ(S) structural score to your own exposure, and the EQOS Asia pricing page lists the formats. Teams in Singapore, ASEAN, and Hong Kong use valuation and structure together to decide the size of positions during calm markets.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile