In an editorial article published by Forbes, Senior Contributor Rob Isbitts cited the US equity markets, including the benchmark S&P 500 index, behaving like a knucklehead.
“The S&P 500 Index and the stock market are acting erratically. Moreover, they are as indecisive as I have seen in over 30 years of watching them.
The future is one big uncertainty, economically and in general.
Despite this situation, there is still a strong feeling among many investors that the “big risk event” is off the table.
It is as if we all know that a 30% decline like the one we had a few months ago is the only one allowed in the decade of the 20’s.
CAPE Ratio, created by Yale Economic Robert Shiller, smooths out the earnings of the S&P 500 companies over many years, and factors in inflation. The result has been a very good predictor of when stock market risk is abnormally high.
The CAPE stood at 27.64 times earnings at the end of April. And with the market a few percentage points higher since that time, and S&P 500 earnings crashing, the CAPE might just be on its way into the 30+ range again.
The only other spike to this level was in the year 2000. That started 3 years of S&P 500 decline. In a row. And a nearly 50% peak-to-trough drop.
In other words, please don’t underestimate the risk that still exists in the stock market. The market is not a noble being.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.