Monday/ US stock market correction: sooner, or later?

It has to be a matter of ‘when’, and not of ‘if’, when it comes to a 10% or 20% correction in the US equities market. Yale University economics professor Robert Shiller has an index called the CAPE: Cyclically Adjusted Price Earnings ratio (it takes inflation into account). The index has only been higher before the 1929 crash, and before the 2000 dot-com bubble. It is now over 30, and – if history repeats itself- it has to go back to the trend value of 16-something.  Sooner, or later.  We just do not know when.

Graph compiled from Robert Shiller’s CAPE index data. Look at what happened after 2000 – the index went from 45 to 23. Then after the 2008 Financial Crisis, it went to 15.

Update Tue: the Dow Jones Industrial Average briefly crossed 23,000 for the first time on Tuesday.  There is already speculation that 25,000 is possible by June 2018.  (Agreed. But let’s add: 20,000 is also perfectly possible).

Screen shot at the close of the trading day Tuesday, from CNBC business channel. (Called the ‘stock market cheerleader channel’ by some analysts).

 

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