Shiller CAPE Ratio Warning Points to US Overvaluation — Is the FTSE 100 a Safer Bet?

The Shiller CAPE ratio warning now flashing for the S&P 500 is the closest it has come to dotcom-era extremes in a quarter of a century, and UK investors with US exposure would do well to take stock. Ycharts puts the July 2026 reading at 41.37, up from 40.91 in June and 37.47 a year earlier — a 10.39% rise over twelve months.

For context, the all-time peak recorded by Multpl.com was 44.19 in December 1999, at the height of the dotcom bubble. The current reading sits fewer than three points below that level. The snippet’s figure of 44.2 appears to be a rounded version of Multpl.com’s recorded 44.19.

The CAPE, or cyclically adjusted price-to-earnings ratio, smooths earnings over a ten-year window to reduce the distortion of a single boom or bust year. GuruFocus records the historical median at 16.06 — broadly consistent with the oft-cited figure of around 17 — though it places the long-term average at 32.36, a figure that reflects how structurally elevated the ratio has been in recent decades. By either benchmark, 41.37 represents a stretched market.

What the Shiller CAPE Ratio Warning Means for UK Investors

The FTSE 100 looks materially different from the S&P 500 on the same measure. Its CAPE sits at approximately 20.07, a reflection of the index’s heavier weighting towards energy, financials, and materials rather than the technology sector that dominates US benchmarks. The FTSE 100 has also risen 20% in 2025 and more than 35% over the past two years, according to UK Dividend Stocks — gains that are meaningful but do not approach the kind of multiple expansion seen stateside.

That valuation gap matters most when markets correct. UK stocks are not immune to global shocks, but the sector composition provides a degree of insulation when the unwind is centred on elevated technology valuations. Macro variables — oil prices, interest rates, credit spreads — will ultimately determine how deep any spillover runs.

Tesco’s Buyback Programme Adds a Capital-Return Angle

Within the FTSE 100, Tesco (TSCO) is frequently cited as a defensive anchor, and its recent financial profile gives that case some quantitative weight. For the 53 weeks ended 28 February 2026, the retailer reported statutory revenue of £73.7bn, operating profit of £3.0bn, and diluted earnings per share of 27.1p, per its preliminary results.

On the capital-return side, Tesco’s investor relations page shows the company committed in April 2026 to a further £750m buyback to run through to April 2027. As of 17 July 2026, £533.3m of that had already been deployed, with shares purchased for cancellation. Completing this tranche would bring cumulative buybacks to £5bn since the programme began in October 2021. Shareholders at the 2026 Annual General Meeting authorised the repurchase of up to 638,187,638 ordinary shares under the current authority.

DirectorsTalk reported the second tranche of the buyback in April 2026, underlining Tesco’s stated commitment to returning surplus capital. At Hargreaves Lansdown, TSCO trades on a P/E of 16.22 with a market capitalisation of £30.21bn, 6.27bn shares in issue, and a dividend per share of £0.097 (ex-dividend 14 May 2026, paid 26 June 2026).

That P/E sits below even the FTSE 100’s own CAPE reading of 20.07, which reflects the market’s scepticism about supermarket sector growth prospects but also the degree to which Tesco’s defensive earnings profile is already priced conservatively. A 16.22 multiple on a business generating £73.7bn in revenue and £3.0bn in operating profit is not a glamour valuation.

The grocery sector’s structural demand stability is genuine: households do not stop buying food in a downturn. Tesco’s position as the UK’s largest supermarket by market share gives it scale and pricing leverage that smaller peers lack. Competition from Aldi and Lidl remains a persistent structural pressure, and a weakening consumer environment would test margin discipline. But the cash generation is consistent enough to fund both the dividend and the buyback simultaneously.

One CAPE ratio reading does not schedule a crash. The composition of the S&P 500 has changed since 1999, and structural arguments exist for why sustained higher multiples are tolerable in a low-rate decade. What the current reading does is narrow the margin for error: at 41.37, the market has little room to absorb a growth disappointment without a valuation reset. The next test is whether the AI-driven earnings cycle can justify the premium, or whether it starts to look, in retrospect, like any other cycle of collective enthusiasm priced to perfection.