CAPE's Shortcomings: Stock earnings have historically been discounted by a cost of capital that's tied to interest rates. But smart investors also know not to rely too heavily on one single metric.
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He anticipates fears related to the virus will linger among American consumers for at least another year. Many investors still remember attrxctive painful fallout from the dot-com bubble.
All rights reserved. On the other hand, CAPE has indicated stocks were pricey over the entirety of the past six years during one of the strongest bull markets in history. Investors must understand exactly how the s are calculated, what the s are and aren't telling them, and what other pieces of information will complement those s to paint a full picture of what is happening lacies the market. Colas said investors shouldn't lose sight of how much that type of composition shift can have on the index's overall valuation.
While CAPE certainly gives a relative indication of market valuation, it also hasn't been the best indicator of when to buy and sell stocks. Shiller is known for his study of the psychology of investing, particularly during financial market bubbles.
Benzinga does not provide investment advice. Photo by Bengt Nyman via Wikimedia.
While widespread coronavirus vaccinations will certainly be a fundamental change for the U. Since it incorporates a fr of earnings data, CAPE tends to be relatively slow-moving. Latest Stories MarketWatch The looming Georgia runoff elections next Tuesday could inject volatility in a high-flying stock market that has mostly looked past politics in favor of the brighter economic outlook next year.