CAPE Ratio - I

| February 19, 2018
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As I have opined in prior writings, valuations are not catalyst to move the market in either direction.

And no it did not cause the 10% sell-off earlier this month.

The U.S. stock market today has only been this expensive just before the crash of 1929, the tech bubble, and the Global Financial Crisis. This is based on the CAPE Ratio which is the Cyclically-Adjusted P/E ratio developed by Robert Shiller.

In looking at those three specific time periods, it wasn’t “expensive valuations” that caused the crash.

What actually triggered significant stock market declines were material slowdowns in the U.S. economy.

This is why we are so laser focused not on day-over-day market moves or high frequency economic data, but on the RATE OF CHANGE (read as year-over-year) readings.

Finally, remember tops and bottoms are not exact points in time, they are a process.

 

Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O

 

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