With CAPE ratios approaching the extreme levels of the 2000s and mega-cap stocks pushing up the S&P 500 index, fears of a stock market crash are reignited. For Canadian investors in SPY, the combination of high valuations, narrow leadership and currency risk requires clear planning. We examine what CAPE means, today’s SPY technical, and how dollar-cost averaging can help you stay disciplined. We also outline practical steps for RRSP and TFSA accounts so Canadians can prepare without overreacting.
What the CAPE spike means for SPY
Shiller CAPE is close to the dotcom level, which is due to lower forward returns and increased drawdown risk. SPY’s P/E ratio is hovering near 28.0 and its yield is around 1.05%, indicating a limited margin of error. History tells us that a stretched starting point can be compressed. Recent review of valuation signals and forward paths adds useful context to forecasts for 2026 sauce.
Profits depend on a small number of giant stocks, which can magnify both the upside and the downside. SPY recently hit year-to-date highs around 696.09, so even a small disappointment could hurt. When leadership stumbles, passive leaders feel it right away. That doesn’t mean sell. That means sizing your positions, setting rebalance bands, and knowing where to buy more during times of weakness.
For Canadians, the CAPE debate is tied to the mathematics of currency. SPY trades in US dollars, so CAD/USD fluctuations can offset or amplify gains. Dividend withholding tax may also apply outside of RRSPs. If you prefer the Canadian dollar, consider hedged or unhedged Canadian-listed S&P 500 ETFs, depending on how you view the currency. When choosing, focus on fees, liquidity, and tracking errors.
Preparing for a Crash vs. Staying on Course
Some managers are increasing their cash buffers by leaning toward highly profitable and cash-rich managers. In Canada, this means short-term Treasury bills, GICs, or Canadian dollar high-interest savings ETFs. The goal is flexibility, not market timing. Practical strategies from Canadian advisors highlight risk budgets, clearer rules and appropriate equity exposure sauce.
Set a fixed CAD amount (for example, CAD 500 per month) and automate it. I use it on the same day every month, I buy it regardless of the headline, and I only review it quarterly. Avoid impulsive doubling down purchases when volatility spikes. Instead, it rebalances to match the target’s weight. DCA reduces regret, reduces timing risk, and keeps you invested when fears of a stock market crash are at their peak.
Choose a range, such as plus or minus 5 percentage points, around the target and rebalance if violated. Use limit orders during periods of high liquidity to spread out larger trades. For taxable accounts, consider capturing losses to improve your after-tax returns. Create a one-page policy that lists your targets, bands, and funding sources to help you stay calm under stress.
I’m reading the SPY tape today.
Recent momentum is positive, but not extreme. The RSI is around 61.67, the MACD histogram is around 0.47, and the ADX at 11.70 shows a weak trend. The price is tracking the upper Bollinger band at 696.48, with the middle band near 685.26. This shows a narrow range and indicates that a follow-through or fade is likely to trigger the next one.
We will focus on the middle band around 685.26 as the first support. A definitive close below this would open more room for the near lower band at 674.04. The average true range varies daily around 5.71 frames. On the upside, the year-to-date high around 696.09 will be a hurdle. If it breaks out with volume, momentum funds may add, but if it fails to break out, it often reverses.
S&P 500 2026 outlook: What we can plan for
Your starting valuation won’t represent the highest value, but it will shape the next five to 10 years. When CAPE is near its historical peak, median returns tend to slow and drawdowns increase. This is not a prediction that stock prices will collapse on a certain date. This is a signal to ease earnings assumptions and ensure cash needs are covered.
Blend global equities and TSX exposure, ladder bonds in Canadian dollars, and select hedged or unhedged S&P 500 exposure based on currency views. For retirement, keep three to five years’ worth of planned withdrawals in safe assets. For accumulators, stick to DCA, rebalance, and increase your savings rate if prices fall.
Write your investment policy in plain language. Set your goal weight plus or minus 5 percentage points. Automate DCA with CAD. Keep your cash in short-term financial instruments rather than in your checking account. Review it quarterly instead of daily. If your fear of a stock market crash increases, reevaluate your plans rather than your emotions.
final thoughts
While the risk of a stock market crash feels high as CAPE approaches 2000 levels, panic is not the plan. Canadians participating in SPY should be aware that valuation risk, concentration and currency fluctuations can all affect returns. Your strength is preparation. Set written goals and bands, automate dollar-cost averaging in CAD, and store short-term cash needs in a secure vehicle. Track target levels of risk such as 685 and 674. If the breakout above 696 holds, hold on. If not, rebalance and add more gradually, keeping taxes and currency in mind. Process exceeds projections for 2026.
FAQ
What does a CAPE ratio near 2000 levels mean for SPY holders?
This indicates a high starting valuation, which often results in lower average returns and higher drawdown risk over time. It does not predict the day when the stock price will crash. It tells you to relax your earnings assumptions, hold cash for short-term needs, and use rules for rebalancing and new purchases.
Should Canadian investors hedge their currency exposure with S&P 500 positions?
Hedging reduces CAD/USD volatility, but may increase costs and tracking variances. As the US dollar strengthens, unhedged exposures benefit. If you spend in CAD and want smoother local returns, hedge. If you accept currency risk for diversification, don’t hedge. Choose according to your spending currency and timeline.
How do I use dollar-cost averaging with SPY in Canada?
Choose a fixed CAD amount, automate your monthly purchases, and avoid pausing during scary headlines. Review it quarterly instead of daily. Rebalances if the allocation exceeds the preconfigured bandwidth. If you hold US-listed ETFs, invest in RRSPs whenever possible to reduce withholding taxes. Record FX-adjusted performance.
What levels currently matter in SPY?
We are looking at Bollinger’s middle band around 685 as the first support and the lower band around 674 as the next support. Resistance is near this year’s high of 696. The average true range is nearly 5.7 points for typical daily fluctuations. Use these levels to determine entry and stop sizes, not to predict tops.
Disclaimer:
Content shared by Meika AI PTY LTD For research and information purposes only. Meyka is not a financial advisory service and the information provided should not be considered investment or trading advice.