CAPE Ratios and Long-Term Returns
Rui Ma (La Trobe University), et al.
January 2026
We demonstrate that 10-year equity market returns are considerably more predictable in relation to price-earnings ratios than previously thought. The traditional approach involves relating the current index price level, based on current index components, to the index earnings of previous years, calculated using those years’ components. When we estimate the cyclically adjusted price-earnings (CAPE) ratio, ensuring that index component prices and earnings are aligned, and apply a superior regression approach, out-of-sample R 2 values are over 50%. The Component CAPE ratio weights individual stock CAPE ratios by their market capitalization, whereas the traditional CAPE ratio is more closely aligned with earnings weighting.
Author Archives: James Picerno
US Q4 Growth Set To Extend Streak As K-Shaped Risk Lurks
The US economy is on track to report a third straight quarter of growth in tomorrow’s delayed GDP update for Q4, based on the median of a set of nowcasts compiled by The Capital Spectator. The pace is expected to slow from Q3, but the increase will be strong enough to keep last year’s chatter about recession on the fringes of economic analysis.
Disinflation Hints At More, Earlier Fed Rate Cuts
Consumer inflation was softer than expected in January, but the news hasn’t changed the market’s outlook for the Federal Reserve to keep its target interest rate steady until June. But the bond market looks poised to test challenge the timetable by pricing in an earlier rate cut.
US 10-Year Treasury Yield Continues To Trade Near “Fair Value”
In line with recent history, the benchmark 10-year yield remained close to its “fair value” estimate in January, based on the average of three models run by CapitalSpectator.com.
Happy Presidents Day!
By excecutive order, the world headquarters of The Capital Spectator is closed today. The usual consultations reconvene tomorrow (Tuesday, Feb. 17), and without the need for congressional approval. During the interregnum, check out this week’s edition of The ETF Portfolio Strategist, our sister publication. Meantime, I hereby veto any legislation to engage in work for the remainder of the day.
Book Bits: 14 February 2026
● Finding Value in Numbers: The Essential Investing Toolkit to Win on Wall Street
Ehsan Ehsani
Summary via publisher (Columbia U. Press)
To be successful as an investor, one needs a framework. And no investing framework works without numbers. Although quantitative methods can be intimidating, they provide a major boost to the quality of analysis. Written for readers without a technical background, Finding Value in Numbers is an engaging and practical guide to how thoughtful investors can use numbers—not just for the sake of crunching data but for making better decisions. Using a value investing perspective, Ehsan Ehsani shows how to deploy quantitative tools to identify and analyze investment prospects, demystifying the math that points to overlooked opportunities in the stock market, other securities, and beyond.
US Growth Expected To Moderate In Next Week’s Q4 GDP Report
Recession risk remains low, but the torrid pace of GDP growth in recent quarters is expected to downshift in next week’s delayed fourth-quarter report from the government, based on the median for a set of nowcasts compiled by The Capital Spectator.
New Research Highlights Value Of Forecasts From Betting Markets
Predicting is hard, especially about the future, runs an old joke. Does the “wisdom” of crowds help? There’s a long line of research suggesting it does. Combining forecasts from several models, for example, has an encouraging track record of outperforming any one model as a general rule. The latest twist on this idea arises from betting markets. As researchers study these sites and compares their forecasts with the usual suspects, the results reaffirm the value of the crowd’s view.
Energy Leads This Year as Tech and Financials Fall Behind
Energy, basic materials, and defensive consumer stocks are in. Tech and financials are out. That, at least, is Mr. Market’s view so far in 2026, based on a set of US equity sector ETFs through yesterday’s close (Feb. 10).
Mixed Economic Signals Complicate Fed Rate‑Cut Path
The economy feels like a tale told through fogged‑up glass lately. Pick the “right” indicators and you can argue almost any version of reality. Forecasts are always a little blurry, but this moment feels different — the numbers themselves seem to be hiding the plot.