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The S&P 500’s CAPE ratio has risen to 42.39, far above the long‑term average of 17.40 and just below the dot‑com bubble peak of 44.19. This marks only the second time in history CAPE has exceeded 40, signaling stretched valuations and reduced tolerance for errors. Future returns will depend more on corporate earnings growth than valuation expansion, with AI seen as a possible support. If AI profits disappoint or real interest rates rise, high valuations could amplify market correction pressures.