⚡️Market Strategy Flash
September 11, 2026
“You’re gonna learn about loss.” – Max Cady, Cape Fear (1991)
For those who haven’t seen the movie, that iconic line was delivered with chilling precision by Robert De Niro as the vengeful psychopath, Max Cady, in Martin Scorsese’s 1991 psychological thriller,Cape Fear.
Robert Shiller’sCyclically Adjusted Price-to-Earnings (CAPE) ratiorecently achieved a dizzying40.3x, soaring well above its 10-year moving average of 32.6x. When staring at that towering multiple, the highest since late-1999 (44.2x), it’s understandable for fearful investors to get spooked by Cady’s terrifying cinematic promise (see the chart below).
Shiller’s CAPE Has Achieved Terrifying Heights
Sources:FRED, Shiller, S&P Global, WCG, 09/9/26.Notes:NBER = National Bureau of Economic Research. SD = Standard deviation.
Valuations Are Meaningless for Near-Term Returns (i.e., 1-5 Years)
Like most if not all valuation metrics, the CAPE is a terrible market-timing tool. Indeed, it’s practically meaningless for predicting near-term stock market performance:
- Take a Deep Breath:If your time horizon is anywhere fromzerotofive yearshence, theR2between the CAPE and S&P 500 forward returns is in a weak range of0.03to0.26(see the chart below).
- Upside Risk:Said differently, high valuations alone don’t trigger immediate selloffs. Multiples can stay elevated for years, and selling stocks too early can risk missing out on significant late-cycle compounding as the reluctant buyers are forced into the market forfear of missing out (FOMO).
Valuations Establish Structural Guardrails for Long-Term Returns (i.e., 16 Years)
Sources:FRED, Shiller, S&P Global, WCG, 09/9/26.Notes:S&P 500 16-year nominal total returns (expressed as compound annual growth rates or CAGRs) were regressed against the natural logarithm of the CAPE (i.e., a linear-log regression). Interval of estimation = 1/1947 - 1/1999.
When Do Valuations Matter?
While today’s valuations don’t dictate today’s or even tomorrow’s price action, they can help define the structural guardrails for prospective generational wealth creation:
- When we lengthen our holding period to16 years, the statistical relationship tightens significantly.
- Based on a 52-year estimation interval (1947-1999), theR2between the logged CAPE and S&P 500 16-year forward nominal total returns rockets to a stellar0.86(see the chart above)!
- Across diverse economic environments – including the low-inflationary 1950s, the stagflationary 1970s and the disinflationary 1980s/1990s – valuations explained an impressive 86% of the variation in 16-year forward returns on stocks (see the chart below)!
Overpaying for Stocks Likely Reduces Their Return in the Long Run (i.e., 16 Years)
Sources:FRED, Shiller, S&P Global, WCG, 09/9/26.Notes:Out of sample period = 1/1999 - 9/2026.
What Valuations Imply About Long-Term Returns
The CAPE has a stronginverserelationship with long-term returns on stocks. Intuitively, overpaying for equities reduces their gains over the long haul, just as underpaying for equities enhances their gains over the long haul. My 16-year linear-log regression model cuts through the short-term noise to provide a sober estimate of distant future outcomes:
- Equation:y= -9.86x+ 37.78
- Input:The natural log of the current CAPE (40.3x) is roughly3.7.
- Output:Plugging that value into the model produces an estimated 16-year forward nominal total return of just1.3%annualized (see the chart below).
The CAPE Has a StrongInverseRelationship with Long-Term Returns on Stocks
Sources:FRED, Shiller, S&P Global, WCG, 09/9/26.Notes:Out of sample period = 1/1999 - 9/2026. Direct investments can’t be made in indices.Past performance isn’t a guarantee of future performance.
Robbing Peter to Pay Paul
A 40.3x multiple doesn’t mean the sky’s falling this week. However, it does mean that future returns have essentially been pulled forward. While I doubt that a crash is imminent, bullish investors like us should be statistically prepared for expected nominal total returns on U.S. large-cap stocks to compress into the low single digits over the next decade and a half. By contrast, U.S. small-cap and international stocks are even more compelling based on their valuation merits alone.
Market StrategyFlash, S&P 500: The Tug of War Between Earnings & Interest Rates, August 21, 2026
Definitions
S&P 500: A stock market index tracking the performance of 500 of the largest publicly traded companies in the United States. It serves as a primary benchmark for the overall health of the U.S. stock market.
EPS: A company’s net profit from regular business operations divided by its outstanding shares, excluding one-time gains or losses. It shows how much profit a company generates from its core everyday business.
P/E: A financial metric calculated by dividing a company’s current stock price by its EPS. It shows how much investors are willing to pay for every dollar of the company’s profit.
Consumer Price Index (CPI): A financial metric that tracks the average change over time in the prices consumers pay for a representative basket of goods and services. It is primarily used by central banks and economists as the chief tool for measuring inflation and evaluating the purchasing power of a currency.
CAPE: The real S&P 500 (deflated by the CPI) divided by the 10-year moving average of real trailing 12-month as reported EPS (deflated by the CPI). A 10-year moving average smoothes out earnings, removes their cyclicality and “normalizes” the P/E ratio.
As reported earnings: Income from continuing operations, also known asGenerally Accepted Accounting Principles (GAAP)earnings, excluding both discontinued and extraordinary income. Both terms are defined by theFinancial Accounting Standards Board (FASB)under GAAP. As reported earnings are the longest monitored earnings series available today.
NBER Recession: A significant decline in economic activity spread across the economy, lasting more than a few months, as officially designated by theNational Bureau of Economic Research. It is determined by analyzing factors like gross domestic product, income and employment.
Natural Logarithm: A mathematical function that determines the exponent to which the constante(approximately 2.718) must be raised to equal a given number. It is widely used in finance and science to model continuous growth rates.
Standard Deviation: A statistical measure that quantifies how much the data points in a set vary or spread out from their average (mean). A low standard deviation means the data points are closely clustered around the average, while a high standard deviation indicates that the data are spread across a wider range of values.
R-Square (Coefficient of Determination): A statistical measure that indicates the percentage of variance in a dependent variable that can be explained by an independent variable in a regression model. It ranges from 0 to 1, where higher values show a stronger fit between the data and the model.
Disclosures
The views expressed are for informational and educational purposes only and are subject to change without notice.
This material is not intended as, and should not be interpreted as, individualized investment advice or a recommendation to buy, sell, or hold any security, sector, industry, or investment strategy.
References to specific companies, securities, sectors, or industries are for illustrative purposes only and should not be construed as investment recommendations.
Investing involves risk, including the possible loss of principal. Investments in a specific industry or sector may involve greater risk and volatility than more diversified investments.
Past performance is not indicative of future results. No investment strategy can guarantee a profit or protect against loss.
Forward-looking statements, including views about future demand, pricing, supply, or industry cycles, are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially.
Data and information are believed to be reliable, but accuracy, completeness, and timeliness are not guaranteed. Source documents should be retained for factual claims, third-party research references, and company-specific data.
Portfolio holdings, allocations, and risk budgets are subject to change based on market conditions, client objectives, and investment guidelines.
The author, firm, clients, or related persons may hold positions in securities mentioned and may buy or sell those securities without notice, subject to applicable policies and regulations.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, an SEC Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
All information in this report is believed to be from reliable sources; however, WCG Wealth Advisors, LLC, makes no representation as to its completeness or accuracy.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the companies as well as broad market, economic and political conditions. Stock investing involves risks, including fluctuating prices and loss of principal. Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. (135-LPL) International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. (93-LPL)
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. (122-LPL)
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. (28-LPL)
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)
Standard deviation is a historical measure of the variability of returns relative to the average annual return. If a portfolio has a high standard deviation, its returns have been volatile. A low standard deviation indicates returns have been less volatile. (131-LPL)
This is for educational / general purposes only, does not constitute investment, tax or legal advice and should not be relied on as such. This is not to be construed as an offer to buy or sell any financial instruments. Any strategies discussed are not intended to be relied upon as the sole factor in making an investment decision for any individual. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. These comments should not be construed as recommendations but as an illustration of broader themes.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. In addition, forward-looking statements, including index targets or market scenarios, are hypothetical in nature, reflect current views and assumptions and are subject to change based on market and economic conditions and are not guarantees of future performance. This is a hypothetical example and is not representative of any specific investment. Your results may vary. (88-LPL) Scenario outcomes are illustrative and not predictive. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Publication Date: September 11, 2026
For Public Use in the US
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