Robert Shiller: “The Market Is Way Over-Priced”

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March 14, 2017 11:41am NYSE:SPY

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The Nobel Prize-winning economist who developed the most widely-used stock market valuation index just issued a stern warning to investors that keep piling into equities, despite historic geopolitical risks.


“The market is way over-priced,” says Schiller. “It’s not as intellectual as people would think, or as economists would have you believe.”

His comments come amid a stubbornly-long bull market that’s now lasted eight years, and has laughed off a bevy of geopolitical risks that include nebulous policies from Donald Trump, the ongoing Brexit saga, and much more.

In fact, the overriding market attitude about Trump and his pro-business policies seems to be completely positive, despite the fact that the unknowns and risks are just as large.

As Bloomberg notes, the last time investors were this jubilant, back in 2000, things got very bad in a hurry:

Back then, the Nobel Prize-winning economist says, traders were captivated by a “new era story” of technological transformation: The Internet had re-defined American business and made traditional gauges of equity-market value obsolete. Today, the game changer everyone’s buzzing about is political: Donald Trump and his bold plans to slash regulations, cut taxes and turbocharge economic growth with a trillion-dollar infrastructure boom.

“They’re both revolutionary eras,” says Shiller, who’s famous for his warnings about the dot-com mania and housing-market excesses that led to the global financial crisis. “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

Of course, overbought markets can persist for many years. Shiller himself issued warnings about the dotcom boom as early as 1996, and today’s valuations are nowhere near those of the internet mania phase of 2000.

But the S&P 500’s cyclically-adjusted price-earnings ratio — known as the CAPE ratio — is hitting 1929 levels, and has exceeded those just prior to the financial crisis that brought global markets to their knees.

Perhaps it’s only a matter of time before the markets come to their senses, or maybe we really are in a new era, where risk is discarded as a relic easily solved by government and central bank accommodation.

The SPDR S&P 500 ETF Trust (NYSE:SPY) was trading at $236.57 per share on Tuesday morning, down $1.24 (-0.52%). Year-to-date, SPY has gained 5.83%, versus a % rise in the benchmark S&P 500 index during the same period.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 107 ETFs in the Large Cap Blend ETFs category.


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