- The S&P 500 averaged 6,736 for October 2025, 2,604 points above its long-term trend of 4,132, implying a 39% decline to reach the trend and signifying a valuation substantially above historic norm.
- The long-term trend indicates a forward 10-year annualized real return of only 1.4%, while the CAPE-MA35 methodology derived 10-year annualized real return is also modest at about 4.3%, indicating limited long-term upside.
- The short-term outlook indicated by CAPE-MA35 Neutral phase has historically yielded low short-term returns.
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Stocks Are Overvalued, Expect Losses And Low 10-Year Forward Returns: Update October 2025
The iM CAPE-MA35 ETF Rotation Strategy with 4 ETFs
- This is a dynamic ETF allocation strategy using the CAPE-MA35 ratio—the Shiller CAPE divided by its 35-year moving average—to identify market phases and adjust portfolio exposure.
- The model defines four primary phases with respective ETFs—Growth (QQQ), Defensive (GLD, XLU), Uptrend (QQQ, XLE), and Downtrend (GLD)—based on the trend and relative valuation of CAPE-MA35. ETF allocations are adjusted monthly in response to these phases.
- Backtesting from 1999 to 2025 shows the model outperforms SPY with 20.1% annualized returns, lower drawdowns, and consistent long-term performance with low turnover.
- The strategy offers a practical, rules-based approach to market timing, blending long-term valuation with trend analysis for superior risk-adjusted returns.
Dynamic ETF Allocation Using CAPE-MA35: A Market Timing Framework Based on the Shiller CAPE
- This study presents a rules-based ETF allocation model that uses the CAPE-MA35 ratio—the Shiller CAPE divided by its 35-year moving average—to identify distinct market phases and dynamically adjust portfolio exposure.
- The model defines four primary phases—Growth, Defensive, Uptrend, and Downtrend—based on the trend and relative valuation of CAPE-MA35. ETF allocations are adjusted monthly in response to these phases.
Timing The Stock Market With The Conference Board Leading Economic Index
- This ETF trading model uses the Conference Board Leading Economic Index to determine “Risk-On” periods for equities.
- A universe is defined from the SPDR, Vanguard, and PowerShares ETF providers for the sectors healthcare, energy, communication, technology, and general multi-sector funds, holding large-mega cap stocks from the United States.
- The model selects 3 ETFs from the previously defined universe at the beginning of a “Risk-On” period and holds these ETFs continuously until the end of the “Risk-On” period.
- During “Risk-Off” periods for equities it goes to the gold ETF (GLD) to maximize returns. ETF (BND) is also a suitable alternative to GLD.
- The simulation shows that this strategy would have produced over 7-times the total return of SPY with similar risk.
Stocks Are Moderately Overvalued but 10-Year Forward Returns Look Good: Update April 2023
- The average of S&P 500 for March-2023 was 3,969 (15% down from Dec-2021 average of 4,675) and is 384 points higher than the corresponding re-calibrated long-term trend value of 3,585.
- For the S&P 500 to reach the corresponding long-trend value would entail a 10% decline from the March average value, indicating that the S&P 500 is not significantly overvalued anymore.
- The Shiller CAPE-ratio is at 27.9, 8% higher than its 35-year moving average (MA35), currently at 25.9, forecasting a relatively high 10-year annualized real return of about 7.3%.
- The long-term trend indicates a forward 10-year annualized real return of 5.5%
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update September 2022
- The average of S&P 500 for September 2022 was 3,853 (18% down from December 2021 average of 4,675) and is still 1,243 points higher than the corresponding long-term trend value of 2,610.
- For the S&P 500 to reach the long-trend would entail a 32% decline from the September average value, possibly over a short period.
- The Shiller CAPE-ratio is at a level of 28.4. That is 10% higher than its 35-year moving average (MA35), currently at 25.7.
- The CAPE-MA35 ratio is at 1.10 (down from the December 2021 level of 1.51), forecasting a relatively high 10-year annualized real return of about 7.1%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
- The historic long-term trend indicates a September 2032 value of 4,943; a 10-year forward real annualized return of only 2.5% (up from the December 2021 forecast of 0.2%).
Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update June 2022
- The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
- For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
- The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
- The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
- The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).
The iM-Inflation Attuned Multi-Model Market Timer
- Investment risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data, including inflation.
- This model seeks to determine effective asset allocation for risk-on and risk-off periods for equities considering the effect of inflation.
- Four risk scenarios are possible: risk-on & normal-inflation, risk-on & high-inflation, risk-off & normal-inflation, and risk-off & high-inflation. Different ETF groups apply to each risk scenario.
- From 2000 to 2022, switching accordingly between risk-related ETF groups would have produced an annualized return of about 39% versus 6.5% for buy and hold SPY.
Evaluating Popular Asset Classes for Inflation Protection
- We tested nine asset classes which are supposed to provide protection against inflation according to an Investopedia article. The test period was from January 2005 to May 2022.
- Investopedia provides no definition for inflationary environment, but this analysis uses the 6-month moving average of the inflation rate and the University of Michigan: Inflation Expectation© series to define it.
- For this investigation we consider separately the inflationary periods which fall within the Risk-on and Risk-off phases for equities, as defined by the iM-Multi-Model Market Timer.
- From the asset classes listed by Investopedia only the Vanguard Real Estate ETF (VNQ) provided some inflation protection relative to the SPDR S&P 500 ETF (SPY).
- Better inflation protection is provided by energy sector ETFs XLE and PXE, but energy sector funds were not among the asset classes listed in the Investopedia article.
The Stock Market Has Peaked, S&P 500 Death Cross For The Ides Of March: Update March 2022
- The average of S&P 500 for February 2022 was 4436 (5% down from December 2021 average) and is still 1896 points higher than the corresponding long-term trend value of 2540.
- A reversal to the long-trend would entail a 43% decline, possibly over a short period aggravated by the imminent S&P500 death cross.
- The Shiller CAPE-ratio is at a level of 35.9 (down 7.2% from its recent peak of 38.7). That is 41% higher than its 35-year moving average (MA35), currently at 25.5.
- The CAPE-MA35 ratio is 1.41 (down from the end of December 2021 level of 1.51), forecasting a 10-year annualized real return of about 4.6%.
- The historic long-term trend indicates a 10-year forward real annualized return of only 0.8% (up from the end of December 2021 forecast of 0.2%).
With reference to Section 202(a)(11)(D) of the Investment Advisers Act:
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