As U.S. stocks continue soaring to record high after record high, investors anticipating an inevitable plunge have yet another cause for sleepless nights. The CAPE ratio, a measure of stock valuations devised by Nobel Laureate economist Robert Shiller of Yale University, is now at a higher level than it was before the Great Crash of 1929, the Financial Times reports, adding that the only time the CAPE was even higher preceded the dotcom crash of 2000-02. However, the FT notes, there are some differences between 1929 and 2018 that make the CAPE parallel less terrifying for investors.
From their previous bear market lows reached in intraday trading on March 6, 2009, through their closing values on January 12, 2018, the S&P 500 Index (SPX) has gained 318% and the Dow Jones Industrial Average (DJIA) has advanced 299%. Regarding the CAPE valuation analysis, there are several key limitations. According to investment manager Rob Arnott, the founder, chairman and CEO of Research Associates, CAPE has been on an upward trend over time. READ MORE