Mkt Valuation Says Noting About Stocks' Direction

For many months, bubble and “lofty valuation” fears have swirled around rising markets. Now another alleged sign is stealing eyeballs: The S&P 500’s cyclically adjusted price-to-earnings (CAPE) ratio is approaching all-time highs set at the apex of the dot-com bubble, which many think shows an almighty crash awaits as an AI bubble implodes. Our counsel? Slow down. While we do see some budding euphoria toward US stocks and think vigilance is important, valuations aren’t helpful in assessing where markets go—and CAPE is even less helpful than most. CAPE is a bizarrely constructed, hugely flawed valuation measure with zero predictive powers. Read Full Article »