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Nosebleed territory. The highest since the Dot-Com Bubble. Something only seen once in 100-plus years of history. That’s what people are saying about the number on this week’s MoneyShow Chart of the Day. But how worried should you REALLY be? Take a look at the chart and you might think…a lot. It shows the “Cyclically Adjusted Price-to-Earnings” ratio from Nobel Prize winning economist Robert Shiller. Unlike other P/E ratios quoted in the financial press all the time, it includes built-in business cycle-related adjustments. Some experts prefer it as a result. CAPE Ratio (100-Year Chart) Source: Wall Street Journal (If you want to get more articles and chart analysis from MoneyShow, subscribe to our Top Pros’ Top Picks newsletter here.) The reading climbed to 40.5 in October. Not only is that up from 37.3 a year earlier, but it’s very close to the all-time high of 44.1 in December 1999. Yes, that was just before the Dot-Com Bubble popped. Google Trends shows the search term “Overvalued Market” is EXTREMELY popular right now in the US, too. In fact, it was the most popular on record in October as you can see in this bonus chart (the data goes back to 2004). Interest Over Time for "Overvalued Market" Search Term Source: Google Trends But it’s worth pointing out that valuation readings are lousy indicators when it comes to trading. Overvalued markets – and overvalued stocks – can get MORE overvalued for a long time. Just look at the chart. That same search term was also very popular in January 2018, June 2020, and February 2021...and relatively popular at several other points in the last 15 years. If you sold the SPDR S&P 500 ETF (SPY) or Invesco QQQ Trust (QQQ) back then, are you really better off for it? Not in the long term (and often not in the short term, either). If you’re worried about overvaluation and exuberance in the AI space, guess what? You can invest elsewhere! There are plenty of sectors and stocks to choose from. And if you’re an aggressive momentum-based trader, you may want to just keep buying pullbacks and keep stops tight. At least until “overvaluation” goes from being something to talk about over a cocktail to a bull-killing catalyst.
