Tags: Shiller | stock | market | bubble

Shiller: Stock Market Showing Bubble-Like Behavior

By Dan Weil   |   Wednesday, 31 Jul 2013 11:23 AM

The stock market may have entered the dreaded bubble territory, says Yale economist and market expert Robert Shiller.

Various stock indices repeatedly hit record highs in recent weeks, and the Standard & Poor's 500 Index has soared 153 percent from its March 2009 low, closing at 1,685.96 Tuesday.

In his book Irrational Exuberance, Shiller defines a speculative bubble as "a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase."

Editor's Note:
Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

The increase since 2009 has been dramatic, he told CNBC. That "certainly has generated stories that are optimistic," he said. The gains are causing more people to enter the market as "latecomers," regretting that they didn't get in four years ago, Shiller explained.

"It does have an aspect of a bubble to it. I think it is highly priced," he said. "This reminds me of 1996, when ... people assaulted me for calling a bubble, because it lasted for another 3 ½ years. So you never know when these things will come to an end."

Shiller also sees a bubble in parts of the housing market, as the S&P/Case-Shiller index of home prices has surged 12.2 percent in the year through May.

"The cities that bubbled in the past are bubbling again," he noted. "It seems partly psychological. They've seen it before, and they're ready for it again."

As for the stock market, it's likely to take its short-term cue from comments by Federal Reserve officials after their meeting Wednesday.

"We're waiting again to hear what the Fed has to say, because everybody's on tenterhooks," Sarah Hunt, a fund manager at Alpine Woods Capital Investors, told Bloomberg.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

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