Robert Shiller: U.S. Equities are Still the Place to Invest

U.S. stocks have the highest CAPE ratio of any global equity market, but they are still the place to invest. But the inventor of that metric, Robert Shiller, says that stocks are indeed risky.

Shiller is a professor of finance at Yale University. He spoke via a conference call hosted by Barclay’s Investors for its RIA clients. The title of his talk was, “Finding Value in 2021.”

“This is a risky time for investing in the stock market,” he said. “But there is a good chance the market will get on the same path as it was before the pandemic.”

But it could go the other way, he added, eroding the wealth of equity investors.

The last time I covered a talk by Shiller was in May 2020, when he said that U.S. equities were not “giving much of a sell signal.” Since that time, the S&P 500 has returned about 13% on an annualized basis.

The U.S. CAPE ratio is almost 36, which is its second-highest level ever; at the end of 1999, it was 44. But it still has a “long way to go” to set another record, Shiller said.

He has a new paper that discusses how CAPE valuations have been affected by the pandemic. Prices are higher because Fed policy has kept rates at record-low levels. Rates were not this low during the Depression and were not low as far out in the yield curve as they are now, he said. The 10-year TIPS yield is below zero.