Macro RG — Market-Level Approximation
A macro extension of the Reality Gap framework, applying the RG lens to entire equity universes rather than individual companies.
1. Current Reading
The firm-level RG is MC / (TE + 10·G). At the macro level, tangible equity data is not available. CAPE captures the price / smoothed-earnings ratio, which maps to the RG denominator's earnings term. The division by 10 aligns the scale with the capitalization factor N = 10.
2. Heuristic Interpretation Bands
Indicative reference only. These are not thresholds or signals — history shows that markets can remain in any zone for extended periods.
| M(S&P 500)RG10 | CAPE equivalent | Heuristic label | Context |
|---|---|---|---|
| < 1.0 | < 10 | Below long-run avg / historically attractive | Rare outside major bear markets or crises. 1982, 2009 briefly. |
| 1.0–1.8 | 10–18 | Around long-run average — normal zone | Long-run CAPE mean ~17. Typical in post-WW2 recovery cycles. |
| 1.8–2.5 | 18–25 | Somewhat above average — caution | Common in extended bull markets (1960s, 1990s, 2010s). |
| 2.5–3.5 | 25–35 | Significantly stretched — elevated risk | Pre-GFC 2007 (~2.7), post-COVID 2021 (~3.9). |
| ≥ 3.5 ← current | ≥ 35 | Historically very hot — rare territory | Dot-com peak 2000 (~4.4), late-2021 peak (~3.9), today (~3.9). |
3. M(S&P 500)RG10 — Monthly Series (1881–2026-04)
Monthly observations — same series standard as the current value above. Dashed line = long-run average (1.77×).
Primary: Yale ie_data.xls (1881-01 – 2023-09). Supplemented with multpl.com (2023-09 – 2026-04).
Monthly values · 1744 data points · range 0.48× – 4.42×. CAPE series begins 1881 (requires 10 years of prior earnings starting 1871).
4. Key Historical Peaks
| Episode | Date | CAPE | M(S&P 500)RG10 | Note |
|---|---|---|---|---|
| Great Crash — post-peak | 1929-09 | 32.56 | 3.26 | Significantly stretched |
| Dot-com bubble peak | 2000-01 | 43.77 | 4.38 | Historically very hot |
| Pre-GFC peak | 2007-10 | 27.32 | 2.73 | Significantly stretched |
| Post-COVID peak | 2021-11 | 38.58 | 3.86 | Historically very hot |
| Current reading | 2026-04 | 39.35 | 3.94++ | Historically very hot |
5. Other Equity Universes
Macro RG coverage is currently limited to the S&P 500 via Shiller data. Other markets are listed below in the planned extension roadmap. No values are shown until the underlying data can be independently verified.
| Notation | Universe | Planned source | Status |
|---|---|---|---|
| M(S&P 500)RG10 | S&P 500 (US large-cap) | Shiller ie_data.xls / Yale | live |
| M(DAX)RG10 | DAX 40 (German large-cap) | StarCapital / Barclays CAPE series | planned |
| M(Nikkei 225)RG10 | Nikkei 225 (Japanese large-cap) | StarCapital / local academic sources | planned |
| M(STOXX 600)RG10 | STOXX Europe 600 | MSCI / Barclays European CAPE | exploratory |
| M(MOEX)RG10 | Moscow Exchange (Russia) | Limited / disputed data | exploratory |
| M(EM)RG10 | MSCI Emerging Markets | MSCI CAPE data | exploratory |
6. Methodology and Limitations
| Dimension | Detail |
|---|---|
| Measure name | M(S&P 500)RG10 — M for macro, (S&P 500) for the universe, RG10 for the capitalization factor N=10 |
| Formula | M(S&P 500)RG10 = CAPE / 10, where CAPE = P / (10-year average real EPS). This equals Price / (10 × smoothed real earnings), mirroring the RG earnings term. |
| What is included | Price relative to long-run inflation-adjusted earnings (CAPE numerics). Captures earnings smoothing and cyclicality. |
| What is NOT included | Tangible equity is absent. The firm-level RG uses MC / (TE + N·G); at the macro level, aggregate tangible equity is not reliably available. This makes the macro measure systematically higher than a full-RG construction would be. |
| Series standard | All values — current reading and historical chart — use the same monthly series. No annual downsampling. 1744 monthly observations (1881-01 – 2026-04). |
| Current value | Latest monthly observation: 2026-04, CAPE = 39.35, M(S&P500)RG10 = 3.935. Trend (++) = 12-month % change in CAPE. |
| Long-run average | Long-run CAPE mean ≈ 17.7 (1881–2026), implying an M(S&P500)RG10 long-run mean of ≈ 1.77. The "normal" zone is around 1.7, not 1.0. |
| Primary data source | Robert Shiller, Yale University — ie_data.xls. Coverage: 1881-01 – 2023-09. CAPE series requires 10 years of prior earnings; raw price series starts 1871. |
| Supplement source | multpl.com Shiller PE table — used for months after the Yale cutoff (2023-09). multpl.com tracks the same Shiller CAPE series. Supplement covers 2023-09 – 2026-04. |
| Trend computation | 12-month % change in CAPE (monthly). ++ >+20% · + >+5% · = ±5% · − >−5% · −− >−20%. |
| Interpretation | The bands are heuristic reference points, not thresholds for buy/sell decisions. High CAPE can persist for years. Low CAPE does not guarantee near-term outperformance. |
Primary data: Robert Shiller, Yale University — Irrational Exuberance dataset, Yale (1881-01 – 2023-09). Supplemented with multpl.com for months after 2023-09. Last fetched: 2026-04-11. Series standard: monthly throughout (current value and chart use the same series). This page presents a macro approximation for research purposes only. It is not the full Reality Gap indicator and must not be used as investment advice. M(S&P 500)RG10 = CAPE / 10. Tangible equity is not included in this macro construction.