Last week we took a close look at the S&P 500, which set a new record close on October 6. We also tested two common worries, that a record high means a fall is coming, and that a big year means a weak one next. Since 1990, neither one has held up as a rule.

The trend still points up. The index is above its 20-day simple moving average, which is above its 50-day, which is above its 200-day. In plain terms, recent prices are running above longer-term averages, and all three averages are rising.

So what keeps people buying? One way to check is valuation, meaning what investors pay for each dollar of company earnings.

A long-running measure of that is the Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio. As of October 13, 2026, it stood at 40.7, which is in the 99th percentile of all readings. The chart below shows the ratio back to the 1880s, and the gray bars mark U.S. recessions as dated by the National Bureau of Economic Research (NBER).

Readings this high have been rare. This measure has been higher only once, at the dot-com peak around 2000. For clients approaching retirement, the useful question is what high readings have meant in the past and how to prepare.

Valuations near record highs

Robert Shiller, the economist who created the CAPE ratio, divides the S&P 500’s price by the average of its inflation-adjusted earnings over the prior ten years. Averaging ten years of earnings smooths out the swings of any single business cycle.

We looked at every month-end when the CAPE ratio stood at 35 or higher. We counted each case at most once every 12 months, so a long stretch of high readings is not counted over and over. Returns include dividends. Since 1998, there have been 7 such cases with a full year of data after them, and 5 with a full three and five years.

Over the next 12 months, results varied widely. After those 7 cases, the S&P 500’s median total return over the following year was 16.3%, with a range of -21.7% to 19.6%. For comparison, the median next-year return across all months since September 1989 was 14.2%. A high reading on its own hasn’t reliably marked a down year ahead, and the -21.7% at the low end shows a down year was still possible.

Across five cases, the S&P 500’s median annualized return over the next three years was 0.6%, with a range of -16.1% to 11.5%. Over the next five years, the median was -1.2% a year, with a range of -3.8% to 12.1%, also across five cases.

The key point is that high valuations have had a stronger link to weak returns over three to five years than over the next 12 months.

We ran the same test on a hypothetical portfolio of 60% S&P 500 Total Return Index and 40% Vanguard Total Bond Market Index Fund, rebalanced monthly. After the same 7 cases, its median next-year return was 11.1%, compared with 16.3% for the S&P 500, with a range of -9.2% to 14.2%. Across all months since September 1989, its median next-year return was 10.8%.

Over three years, the 60/40 mix’s median return was 3.5% a year, compared with 0.6% for the S&P 500, with a range of -6.4% to 5.9% across 5 cases. Over five years, its median was 2.4% a year, compared with -1.2% for the S&P 500, with a range of 0.9% to 7.4% across 5 cases. All five of its five-year returns were positive, and at every time frame its range was narrower than stocks alone. Oh, and these 60/40 results are hypothetical. No actual account earned them, and they don’t include advisory fees.

Here are the same numbers in one place. Three- and five-year figures are per year, and the 60/40 results are hypothetical.

If you’re still adding to savings, there’s more time to absorb a few flat years. Near retirement, the order of returns carries more weight. Weak years just before or after withdrawals begin can do lasting damage, because selling at lower prices to fund spending leaves less in place to recover. The three- and five-year stretches are where the numbers above were lowest.

What history does not tell us is that five to seven cases is a small sample, and the outcomes varied widely. A CAPE reading says nothing about timing, and valuations can stay high, or climb higher, for a long time. Treat all of this as history and nothing more.

What does this mean to me?

The data show a wide range of 12-month results after high readings, many of them positive. Over three and five years, results after high readings were weaker, and the 60/40 mix had higher median returns and narrower ranges over those stretches.

A mix of stocks and bonds can help smooth out a portfolio’s ups and downs. Bond prices also fall when interest rates rise, so bonds carry their own risks.

So here’s what we’d check.

  • Cover the next few years of planned withdrawals with cash and bonds, so a down market doesn’t force you to sell stocks low.
  • Check that your mix of stocks and bonds still fits how much up and down you can live with.
  • Make sure your plan doesn’t depend on a strong stock market in any particular year.

If you’re within a few years of retirement or already taking withdrawals, now is a good time to walk through your withdrawal plan. Together we’ll look at how the next few years of spending are covered, how much your plan leans on stocks, and whether your mix still fits the life you want. Set up a time or give us a call, and bring any questions about this week’s numbers.

Important Disclosures Up Capital Management is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. This commentary reflects Up Capital Management’s opinions as of the publication date, which are subject to change without notice. It is not individualized investment advice. The 60/40 results are hypothetical. They use a backtested blend of 60% S&P 500 Total Return Index and 40% Vanguard Total Bond Market Index Fund, rebalanced monthly. They do not represent any actual account, do not reflect advisory fees, and were constructed with the benefit of hindsight. Fund returns reflect fund expenses, and index returns do not. Indexes are unmanaged and cannot be invested in directly. Statements about the future involve risk and uncertainty, and actual results may differ materially. Past performance is not indicative of future results. Third-party data from YCharts is believed to be reliable but is not guaranteed.