Even Robert Shiller is worried about stock market valuations.
The author of “Irrational Exuberance,” a seminal book on volatility and behavioural economics that was released right as the dot-com bubble collapsed, is having flashbacks of that era.
“The market is way overpriced,” Shiller said, according to Bloomberg’s Jason Clenfield and Adam Haigh.
That is accurate by many measures, including Shiller’s price-to-earnings ratio, which measures a stock’s price relative to the last 10 years of the company’s earnings. Its most recent reading on Monday was 29.24, a level not seen since the early 2000s when the internet bubble was leaking.
Shiller likened the market’s assessment of President Donald Trump’s pro-business agenda to the awe that followed several internet companies as they grew in the late 1990s. Both periods can be described as “revolutionary,” Shiller told Bloomberg, but investors are too focused on the positives and not so much the downside of Trump’s agenda.
He did not forecast a short-term decline in stocks, but told Bloomberg that he wasn’t buying more.
The benchmark S&P 500 index has gained 11% since the election. While a five-quarter streak of year-on-year earnings declines ended in the fourth quarter, the market was also propelled by expectations for tax cuts and deregulation. As there hasn’t yet been much implementation, several strategists have argued that stocks are due for a pullback that won’t necessarily end the eight-year-old bull market.