US equity valuations have climbed back to levels last seen during the 2000 dotcom bubble, with the CAPE ratio breaking 40 times for the first time since 1999. This elevation alone signals heightened loss risk, but the danger compounds because corporate earnings are also far above historic norms.

Current S&P 500 earnings sit about 59 per cent above their long‑term exponential trend, pushing the earnings z‑score to 1.8 — near bubble territory. At the same time, the CAPE z‑score stands at 2.9, well above the 1.8 reading at the 1929 peak and only modestly below the 3.3 extreme of December 1999.

The earnings surge is concentrated in the AI‑driven hyperscalers that dominate the Magnificent Seven. If those supernormal profits revert to trend while capital spending accelerates, the CAPE could swell to roughly 64 times, implying a z‑score of 4.6 — an event expected once in over 43,000 years under normal distribution assumptions.

For long‑term investors the risk now outweighs the opportunity. The analysis does not call for an immediate sell‑off, but it does demand vigilance and readiness to reduce exposure when the earnings tide turns.