P/E10 Nears 40 as US Stocks Reach Tech-Bubble Levels

A monthly market valuation update shows the 10-year cyclically adjusted price-to-earnings ratio, or P/E10, at 39.9 as year-over-year inflation measured 4.47% and the 10-year Treasury yield averaged 4.48% for the latest month. October 2025 inflation was extrapolated from the two prior months because official Consumer Price Index releases paused during a government shutdown earlier in 2025.

The P/E10 smooths short-term earnings swings by averaging real earnings over a decade. The long-term average for the series is 17.7. The update uses a threshold of P/E10 at 25 or higher to mark the extreme valuation episode associated with the 1997–2002 technology bubble; the current reading is above that threshold.

The analysis highlights an inflation “sweet spot” of roughly 1.4% to 3.0% that historically coincided with higher market valuations. At a 4.47% year-over-year rate, inflation sits outside that band in the most recent reading.

The report presents a historical scatter analysis that divides observations into three periods: January 1881–December 2007, January 2008–February 2020, and March 2020 to the present. Those segments show how the relationship among inflation, P/E10 and valuations has changed across eras. Separate charts compare P/E10 and the 10-year Treasury yield using data beginning in 1960, a start date chosen because bond yields became more consistently responsive to inflation around that time.

In the post-2008 period, the update highlights a sustained episode in which 10-year yields fell below 2.5% while P/E10 ratios rose above 20, a combination uncommon in earlier history. The current monthly average 10-year yield of 4.48% differs from the post-crisis ultra-low-yield years and is noted in the analysis as closer to yield levels seen around the late-1990s valuation peak.

The update identifies the tech bubble period (June 1997–January 2002) as an extreme valuation episode and uses the long-term P/E10 average of 17.7 as a benchmark for how current valuations compare with historical norms. Charts and series in the report separate the data into pre-2008, post-financial-crisis, and pandemic-era segments to illustrate shifts in the relationships among earnings-adjusted prices, inflation and bond yields.

The report lists exchange-traded funds that track U.S. Treasury securities as examples investors use to obtain Treasury exposure, including Vanguard 0-3 Month Treasury Bill ETF (VBIL), Vanguard Intermediate-Term Treasury ETF (VGIT) and Vanguard Long-Term Treasury ETF (VGLT). The update presents figures and historical comparisons and does not include forecasts or projections about future market movements.