It is commonly said that the CAPE ratio is at a high level, relative to history:

Here is the same graph but switched to an earnings yield basis or the CAEY:

From this, one can subtract the 10 year constant maturity rate, to get an approximation of the level of the CAEY over longer term risk free rates:

Technically, this compares the backwards looking CAEY with the rates which are inherently forward looking. For our part, we are not going to sweat this problem.

Here is the same chart, zoomed to the post-WWII years as these are more appropriate for comparison given institutional changes:

Plainly, if last year we could point to the difference between the CAEY and the 10 year treasury as an assurance that stock prices were, at least relative to rates, within reason, any reassurance this gave is diminishing. Here is the chart, zoomed into the post crisis years:

Thus, the difference between the CAEY and the 10-year is almost closed.

Of course, the CAEY doesn't yet account for the large increase in value from the tax breaks but this, at a maximum, can only increases the value of corporate earnings by 21%.

Back of the envelope, this would only bump the difference between the CAEY and the 10-year by some 60 bsp, bringing us only to the relative valuations which prevailed at the end of 2017.