Choppy Day on Wall Street

Despite the Choppiness, SPX and NDX Closed Green

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Today we will be covering...

  • Today, we will examine future stock market returns as a function of P/E Ratio valuation.

Market Valuation vs Future Returns

  • Shiller’s S&P 500 Cyclically Adjusted PE (CAPE) Ratio just hit its 2nd highest level ever—only behind the 2000 dot-com peak. 

  • Extreme bullishness ignores this red flag: High CAPE = Low future S&P 500 returns. 

  • I cannot stress enough how important this is for long-term and buy-and-hold investors to understand.

  • Similar conclusions can be drawn from the Forward PE Ratio.

  • The relationship between the forward PE and 5-year annualized return is shown in the chart below.

  • Based on the PE calculated at the end of September, the 5-year annualized return is estimated to be negative.

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  • Watch my latest YouTube video about gold and silver cycles.

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    • The NAAIM post below should not be construed as a short-term sell signal.

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