Nobel Prize-winning economist Robert Shiller warns that investors have lost their healthy skepticism and as a result have made the U.S. stock market the most expensive in the world.
"Sometimes I think these are crazy times but it's not particularly that people are talking the way they did at the peak of the new millennium. … We're not there," Shiller, a professor of economics at Yale University, recently told CNBC.
"The market could go up for years. I'm not very able to predict turning points. I do think it's risky now. This is a risky time, especially investing in the U.S. – the most expensive country in the world," said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.
The Yale economist used his cyclically adjusted price-earnings (or CAPE) ratio to determine valuation and warned that it is at a high level now and shows that the U.S. stock market is the world's most expensive. The cyclically adjusted price-earnings (CAPE) ratio market valuation measure is calculated using price divided by the index's average historical 10-year earnings, adjusted for inflation.
Investors aren't worried about earnings volatility because of the growth seen in the "Trump revolution," but he added that we've been seeing growth since before President Trump took office
"Right now, it is kind of a Trump narrative that's supporting our faith in these earnings numbers, even though you know historically strong earnings growth has generally been reversed before too long," said Shiller, who also helped develop the widely-followed S&P/Case-Shiller Home Price Indices.
Meanwhile, Newsmax Finance Insider Andrew Packer predicts the current rally has a little bit more gas left in its tank despite the "check engine" light flashing.
"In this market, fear is running pretty high, all things considered. There’s a general sense of wariness, in spite of markets setting all-time highs. And to me, that kind of emotional sentiment is exactly why the market is likely to head higher for a while yet," Packer wrote in a recent blog.
"It goes back to the old Wall Street adage that bull markets don’t die of old age. Rather, bull markets die on the altar of greed, where this time is different and anyone can make at least 15-20 percent per year without any real effort at it," Packer said.
"When we get that kind of sentiment, we’ll be too close to a market top for comfort. And chances are we’ll also likely be tempted to be caught up in the mania," Packer said.
"That tells us that today’s caution means we’re likely to still see stocks rally into the last part of the year. That’s true even if we get a seasonal selloff over the next few weeks. September and October tend to be the two worst performing months of the year for investors," Packer said.
"But if anything, I think we’ll have a solid fourth quarter. Fears of foreign markets and trade wars will always be with us in one way or another. But whatever’s spooking the markets now will be the distant past in a few months as different fears emerge. Looking at markets through this greed/fear lens, we can have a few short-term fears, but still have a long ways to go."
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