FTSE 100 CAPE Valuation at 9,748
The FTSE 100 has surged to 9,748, a level that reflects both global optimism and domestic resilience. For quality investors, the key question is whether this price represents fair value or excess exuberance. The CAPE ratio — cyclically adjusted price‑to‑earnings — provides a disciplined lens.
Understanding CAPE
CAPE smooths earnings over ten years, adjusting for inflation. This avoids distortions from short‑term cycles and offers a long‑term valuation anchor. Historically, UK equities have averaged a CAPE of 14–15. Today, the FTSE 100 sits closer to 18, suggesting modest overvaluation.
Valuation context
At 18x CAPE, expected real returns fall to ~4–5% annually, below the long‑term average of 6–7%. Dividend yields of ~3.2% provide some cushion, but the market’s premium reflects optimism about banks, energy, and healthcare. For quality investors, this means selectivity is crucial.
Quality investor implications
High‑quality companies with durable moats and strong balance sheets can justify premium valuations. AstraZeneca, Unilever, and Shell still offer resilience. But broad market exposure at these levels may deliver muted returns. Quality investors should focus on compounding businesses rather than chasing index momentum.
Conclusion
The FTSE 100 at 9,748 is not dangerously overvalued, but it is no longer cheap. Quality investors should remain disciplined, emphasizing resilience and long‑term growth rather than broad exposure.