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Here's what the CAPE ratio is signalling about the U.S. stock market


Published on 2025-01-02 06:21:08 - MSN
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  • Clearly, having higher exposure to stocks when CAPE levels were low and lower exposure ... for the S&P 500 to produce good returns over the next several years, and investing that requires something extraordinary to occur has historically been a bad idea ...

The article from MSN discusses the Cyclically Adjusted Price-to-Earnings (CAPE) ratio, also known as the Shiller P/E ratio, and its implications for the U.S. stock market. The CAPE ratio, developed by Nobel laureate Robert Shiller, averages inflation-adjusted earnings over the past 10 years to smooth out economic cycles, providing a long-term perspective on market valuation. Currently, the CAPE ratio stands at around 34, which is significantly higher than its historical average of about 16.6, suggesting that stocks might be overvalued. This high ratio has historically been associated with lower future returns, potentially indicating a market bubble or at least a period of lower returns in the future. However, the article also notes that while the CAPE ratio is a useful indicator, it isn't infallible; it can remain high for extended periods, and other factors like interest rates, economic growth, and investor sentiment also play crucial roles in market performance. The piece concludes by advising investors to consider this metric alongside other analyses when making investment decisions.

Read the Full MSN Article at:
[ https://www.msn.com/en-ca/money/savingandinvesting/heres-what-the-cape-ratio-is-signalling-about-the-us-stock-market/ar-AA1wQDqF ]