What do I think about the U. S. stock market?
It’s in a bubble, so I’m getting prepared.
And time is different, too, because of rising inflation and interest rates, which means falling bond prices.
So bonds aren’t going to be a crutch in a falling stock market.
Why do I think it’s a bubble?
A picture is worth 1,000 words.
S&P 500 Shiller CAPE Ratio was created by Yale University economist Robert Shiller as a way to understand long-term stock market valuations.
The S&P 500 Shiller CAPE Ratio, also known as the Cyclically Adjusted Price-Earnings ratio, is calculated as the ratio of the S&P 500’s current level divided by the 10-year moving average of inflation-adjusted earnings.
The S&P 500 Shiller CAPE Ratio may be used as a valuation method to forecast future expected returns.
– Higher CAPE ratio could indicate lower returns over the next couple of decades,
– Lower CAPE ratio could reflect higher returns over the next couple of decades, as the ratio reverts back to the mean.
S&P 500 Shiller CAPE Ratio is at a current level of 39.60, and as you can see in the chart, it suggests the stock market is the second most expensive since 1881, the last 140 years. It’s more than 200% higher than its long-term average, and far from the low levels that historically preceded long-term bull markets.
The current risk for investors is it plays out similar to the past but without bonds trending up, acting as a crutch to hedge some of the stock market losses.
There’s never been a more critical time to row, not sail, so we’ve got out the oars.
It’s an exciting time to be an investment advisor and portfolio manager. We are empowered with a broader, more robust suite of tools to define and manage risk than at any other time in history.
Is this the beginning of a bear market?
Maybe, we’ll see, only time will tell.
Even if it is the early stage of a bear market, it’ll likely unfold with many swings up and down along the way.
But I think we’ll see all the speculation unwind in the years ahead.
For the tactical trader, investment success isn’t so much what the market is doing to you, but what you are doing with the market.
I think that’s the case for everyone.
If you need help, contact us.
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change. Do not make any investment decisions based on such information, as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect a position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.