Robert Shiller: “Not Much of a Sell Signal” for U.S. Stocks

The conventional wisdom is that U.S. stocks are overvalued and the only uncertainty is the timing of the inevitable correction. But Robert Shiller says his CAPE ratio, when considered alongside low bond yields, is not giving “much of a sell signal” for U.S. stocks.

But he said that equity investors should not be surprised by a market downturn.

Shiller is a professor of finance at Yale University. He spoke via a conference call hosted by Barclay’s Investors for its RIA clients.

He is also the author of the recently published book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Much of his talk was oriented to the theme of how certain narratives take hold in the public discourse and become the drivers of economic events.

There are too many uncertainties to forecast as normal, according to Shiller, which may be why he placed so much emphasis on narratives. The “big depression” scenario is a narrative that is frequently discussed, he said, as it was 10 years ago during the great financial crisis. He is not forecasting that outcome, but said it is possible.

The U.S. took 10 years to recover from the Great Depression, and that is the common narrative that informs people’s thinking. The lesson we draw from it is based on the image of people standing in bread lines and jumping suicidality from tall buildings, he said.

Forecasting should be based on observations from the popular narratives, according to Shiller. Since Trump was elected, the dominant narrative was that the U.S. was the country of strong growth, but that narrative has evaporated and been replaced by depression-like scenarios.