Shiller’s Pointing to the Trump Phenomenon As an Explanation of Today’s High Stock Prices Is Unconvincing

Robert Shiller recently wrote an article for the New York Times discussing expert opinion and stock returns. Shiller argues that “Gut Feelings Are Driving the Market” (that’s the headline) and that “Valuations are high, but investors are still willing to hold because of a visceral emotion driven by President Trump” (that’s the sub-heading).

He notes that: “People will point this year to low interest rates to justify the high C.A.P.E. ratio. But interest rate levels historically have not correlated well at all with the C.A.P.E. For example, low long-term rates did not explain the high C.A.P.E. ratios in 1929 and 1999, nor did rising long-term interest rates explain subsequent market crashes.” …

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