Shiller, “Don’t Sell Stocks Because of High Valuations”

Shiller, “Don’t Sell Stocks Because of High Valuations”

Shiller, “Don’t Sell Stocks Because of High Valuations”


Yale Economist Robert Shiller advises savvy investors not to give into temptation to dump your stocks just because valuations are high.

“If I was giving you advice: Do nothing. Don’t pull out. Don’t go in,” the Nobel laureate economist said on TV.

Investors are dialing back hopes that President Donald Trump will enact his agenda quickly, with a Thursday vote on a healthcare bill a litmus test which could give stock investors another reason to sell pushed forward to Friday evening on…

US stocks rallied after the November Presidential election, with the S&P 500 posting a string of record highs up to earlier this month, on bets that the pro-growth Trump Agenda would be quickly pushed by a Republican Party with majorities in both chambers of Congress.

Meanwhile, Professor Shiller’s valuation gauge, the cyclically adjusted price-to-earnings or CAPE ratio, is at levels it surpassed only in Y 1929 and surrounding the “dot-com” bubble.

Its elevated level indicates the market is “highly priced in the short run,” he said.

The CAPE’s mark is determined by comparing the S&P 500’s current level to average earnings over the previous 10 years, adjusted for inflation.

“It’s already high enough to make me nervous … the CAPE ratio is one of the best indicators, or I might say the best indicator, if you look at one alone, for the outlook in the long run for stocks. It’s high now; and in the past when it’s been this high, it hasn’t done well,” Professor Shiller said.

“I’m not going to plunge into the market. I’m holding steady; I’m not pulling out, either,” he declared.

“I still suspect there is more left in the Trump rally,” he said. “I’m just playing the game a little bit here, and thinking, in the shorter run, this rally — I can start to see reasons for it, and I’m thinking about those reasons,” he said.

He said the recent stock surge is “not a typical bull market with a lot of excitement,” he said. “It’s more of an anxious market where people are afraid of secular stagnation, of losing their jobs to foreigners, or to computers. And they have kind of a wishful-thinking bias about investments like stocks. It’s the only way I can understand it.”

Strategists have been cautioning for weeks that markets are pricing in a scenario where nothing goes wrong with Trump’s agenda.

Investors are paying $18.10 for every USD in earnings expected on the S&P 500 over the next 12 months, near the most expensive US stocks have been since Y 2004.

While investors and strategists have said they do not see an immediate threat to this 8-year-old Bull market, there is a risk of a 5-to-10% pullback.

Only a Bear market, marked by an 18-22% decliner would put an end to the current Bull run dating from 9 March 2009.

Symbol Last Trade Date Change Open High Low Volume
NYSEArca:SPY 234.03 23 March 2017 -0.25 234 235.34 233.6 100,396,100
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.22) Neutral (-0.05) Neutral (0.15) Very Bullish (0.56)

Have a terrific weekend.


The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

Latest posts by HEFFX Australia (see all)