Should you be worried about a high CAPE ratio?
A recent article in Advisor Perspectives highlighted how high CAPE ratios have historically resulted in low S&P 500 returns.
Chart Source: https://go.astoriaadvisors.com/e/939763/pe-as-a-predictor-of-returns-1/c17525/1456001806?h=FzF4fHaPa0AKxwM7jliJ6EzoqMpPPbGzFh7BCjih5uc
The Shiller PE ratio is something that is fiercely debated in the investment community. My takeaway:
- Don’t obsess over it but keep it in the big picture.
- It’s a great tool to assess the state of affairs with regards to valuations, but hard to manage portfolios as it is not great at timing.
- There are more effective valuation and risk management techniques that better serve for managing portfolios.
- The larger concern that I have for markets is that we have likely reached peak sentiment.
What is the catalyst to take markets higher when we have:
- Full Valuations
- Peak Sentiment
- Allocations at all-time highs
- Earnings growth & macro data have skyrocketed off of the March 2020 lows
See the following tweets that I have sent out in recent weeks:
Best,
Astoria Portfolio Advisors
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