S&P 400‘s CAPE ratio

The CAPE ratio for the S&P 400 evaluates mid-cap U.S. stocks by comparing current prices to inflation-adjusted earnings averaged over the past 10 years. This helps smooth out short-term earnings fluctuations, offering a long-term perspective on valuation. Applied to the S&P 400, which tracks medium-sized companies typically valued between $2 billion and $10 billion, the CAPE ratio helps investors determine if these stocks are overvalued or undervalued compared to historical norms. A high ratio suggests overvaluation and potential lower future returns, while a low ratio indicates undervaluation and possibly higher returns, guiding long-term investment decisions.