, Columnist
Shiller’s Ratio Flunks at Predicting Stock Performance
Equities are still the place to invest, assuming investors can handle the greater volatility compared with bonds.
The bulls may have room to run.
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My weekend reading included a number of articles, sometimes within the same publication, arguing either that stocks were primed for a sharp decline, or were likely to continue advancing. We remain fairly positive on the outlook for equities and quite bearish on bonds.
Much of the negative outlook for stocks is driven by use of Robert Shiller’s Cyclically Adjusted Price Earnings ratio to judge whether shares are cheap or expensive. The S&P 500 Index currently trades at a CAPE above 30, which has been exceeded only in 1929 and in 2000, highly inauspicious times.