Tags: Schiff | Shiller | Yellen | stocks

Schiff, Shiller Agree With Yellen on Danger of High Stock Valuations

By    |   Monday, 11 May 2015 06:00 AM

Two investment luminaries — Peter Schiff and Robert Shiller — second Federal Reserve Chair Janet Yellen's comments Wednesday that the stock market's high valuations may spark trouble.

Stocks are "extremely overvalued," Schiff told CNBC.

The S&P 500 stands at 2,114, less than 1 percent below its record high. As for valuations, the S&P 500's trailing price-earnings ratio registered 20.74 last Friday, up from 17.60 a year earlier, according to Birinyi Associates.

Schiff, chief executive of Euro Pacific Capital, thinks the Fed's massive easing program is responsible for that overvaluation. "Artificially low rates" have sent investors to stocks, he said. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

Shiller told CNBC that Yellen's remarks performed a valuable public service.

"It's part of their job to disturb the tranquility, and I praise Janet Yellen for doing that," he said. "On the other hand, she was also right not to be alarmist about it."

Yellen said, "I would highlight that equity-market valuations at this point generally are quite high, not so high when you compare returns on equity to returns on safe assets like bonds, which are also very low, but there are potential dangers there."

Meanwhile, corporate profits are sliding, with S&P 500 earnings expected to show a 0.4 percent dip for the first quarter, according to FactSet.

And that may be bad news for stocks, says Jeffrey Kleintop, chief investment strategist for Charles Schwab.

"With stocks on the rise in the world’s major markets in 2015, investors may be overlooking the fact that earnings, one of the most important drivers of long-term stock market performance, have been falling," he writes in Barron's.

"Fortunately, we believe this decline may be relatively short-lived. But if earnings keep dropping for a prolonged period, stocks may suffer significant declines, since their above-average valuations in many markets leave little room for disappointment."

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Two investment luminaries - Peter Schiff and Robert Shiller - second Federal Reserve Chair Janet Yellen's comments Wednesday that the stock market's high valuations may spark trouble.
Schiff, Shiller, Yellen, stocks
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2015-00-11
Monday, 11 May 2015 06:00 AM
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