A signal from the past

American Nobel laureate Robert Shiller developed the CAPE ratio (Cyclically Adjusted Price-to-Earnings) to measure whether the stock market is overpriced relative to earnings, adjusted for business cycle fluctuations over a ten-year period. According to Nasdaq Markets, the indicator is now at one of its highest levels since the dotcom bubble burst (Nasdaq Markets, 2026).

It's worth emphasizing that the source material from Nasdaq is limited to a short headline and one main point, without concrete figures for today's level. This makes it difficult to fully verify the claim, but the historical reference framework is well documented and verifiable.

What the CAPE ratio actually measures

At the dotcom peak in December 1999, the CAPE ratio reached its historical high of around 44, compared to a long-term historical average of roughly 17. The market crashed in the years that followed. A similar extreme value wasn't seen again until after the 2008 financial crisis, as markets once again began building up valuations through the 2010s and 2020s.

44
CAPE peak level during the dotcom bubble (1999)
27
years since a similar level was last observed
0.75+
Bitcoin correlation with S&P 500 during stock market corrections

History offers no guarantees

Shiller himself has been clear that high valuations don't automatically mean an immediate crash. In an interview with Quartz in 2017, he said of speculative bubbles in general: "The problem, of course, is that speculative bubbles generally do burst, and nobody knows exactly when they will burst" (Quartz/Business Insider, 2017). The same reasoning applies to today's CAPE levels — a high valuation is a risk indicator, not a timetable.

High CAPE levels have historically been forerunners of major corrections — but crypto tends to fall even harder when that happens.

What happens to crypto when the stock market corrects

For investors who also have exposure to Bitcoin, the relationship between stock market corrections and the crypto market is relevant. Data from the International Monetary Fund (IMF) shows that the correlation between Bitcoin's daily returns and the S&P 500 jumped from 0.01 in the 2017–2019 period to 0.36 in 2020–2021 (IMF Blog, January 2022). The IMF concluded that stronger correlation suggests Bitcoin is increasingly being traded as a risk asset rather than a diversification asset during market stress.

BlackRock's digital assets research team went even further in a note from September 2024, pointing out that the correlation between Bitcoin and the S&P 500 can rise to 0.75 or higher on shorter time horizons during stock market declines, driven by an immediate "hunt for liquidity" and forced unwinding of leveraged positions in institutional portfolios (BlackRock via Nasdaq, 2024).

Historical examples support this. During the covid-19 shock in March 2020, the S&P 500 fell around 34 percent from peak to trough, while Bitcoin fell approximately 50 percent over the same period, and the correlation spiked to around 0.52. During the Federal Reserve's rate hike cycle in spring/summer 2022, the S&P 500 fell around 16 percent, while Bitcoin plunged nearly 58 percent, and the 30-day correlation broke 0.80 against the Nasdaq index (CryptoSlate/CoinMetrics data, cited in the research material).

Given that Bitcoin is currently trading around $78,800 with a Fear & Greed Index of 57 out of 100 — a neutral to slightly greedy sentiment — the market is not in an acute panic phase. But the mechanism is well documented: if a stock market correction is triggered by high valuations as indicated by the CAPE ratio, risk has historically spread quickly to the crypto market through forced selling and margin calls, according to both the IMF and BlackRock.

Norwegian perspective

Although the news primarily concerns the American stock market, it is relevant for Norwegian investors and institutions with significant exposure to American stocks — including the Government Pension Fund Global (the Oil Fund), which has a substantial share of its portfolio in American companies listed on, among others, the S&P 500. A persistently high valuation in the American market therefore indirectly affects the fund's returns, and with the Norwegian krone's relationship to the dollar, fluctuations can have compounding effects for Norwegian savers with fund exposure to American indices.

Source criticism

The original Nasdaq report underlying this story is brief and contains few concrete figures. The claim that the CAPE ratio is at its highest since the dotcom bubble should therefore be interpreted as a qualitative observation from Nasdaq Markets, not a precisely documented measurement in this article. Historical CAPE levels during the dotcom bubble and the financial crisis are, however, well documented in academic and financial literature, and are used here as a reference point to put the current situation into perspective.