Also known as the Shiller P/E, is a stock market valuation measure that divides the current stock price by the average of the last 10 years’ inflation-adjusted earnings, thereby smoothing out business cycle volatility to assess long-term over/undervaluation and predict future returns. It provides a better gauge of sustainable earnings power than the traditional P/E ratio, which uses only one year’s earnings. The latest reading shows that equity valuations are near the highest levels since 1880.
