Bloomberg | Shiller P/E Ratio Sounds a Warning for Richly Valued S&P
The S&P 500’s valuation is the highest it’s ever been except for the early 2000s, at least according to its cyclically adjusted price-to-earnings ratio, a metric invented by economist Robert Shiller that divides a stock price by the average of its inflation-adjusted earnings over the past 10 years.
Bullish investors argue that while market valuations are rising because of tech, the pace of increase is much slower than the dot-com era. At one point in 2000, Cisco Systems Inc. was priced at over 200 times its previous 12 months of earnings, while Nvidia is at less than 50 times today.
Stock prices decouple from earnings growth in an environment where there’s no debate on valuations, according to Richard Clode, a fund manager at Janus Henderson. “We’re just not seeing that currently as yet,” he said.
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