Shiller Says U.S. Stocks Could Go A Lot Higher Before They Fall

(Bloomberg) -- Near-record U.S. stocks still have scope to zoom to new highs, according to Robert Shiller, the Nobel laureate who’s famed for his analysis of asset-price bubbles and who last year warned that the market was over-priced.

“The stock market could get a lot higher before it comes down,” Shiller said in an interview with Bloomberg Television Thursday. “It’s highly priced, but it could get much more highly priced. It’s a risky market now.”

The comments are a contrast with increasing focus on gauging when the next bear market kicks in. Strategists at banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have recently highlighted the dangers of an impact from the U.S.-China trade war.

Shiller’s focus instead is on President Donald Trump’s support for corporate America, which he says is driving sentiment and market strength. The S&P 500 Index has climbed almost 9 percent this year, with the total return to investors running at an annual rate of more than 14 percent. It closed Thursday less than 0.5 percent from its August record high.

“It has something to do with our president, who is an exceptionally business-oriented president and who wants to deregulate and favors lower taxes,” he said. “That has an effect on the market but it goes beyond the rational, logical effect -- it has something to do with our animal spirits. The U.S. is just doing great right now in terms of the strength of the economy and the stock market. That seems to be built around the Trump story at this point in history.”

Valuations may be among the most extreme in long-term history, but Shiller highlighted that they’re still well below the heady days of the technology boom at the turn of the century. The cyclically adjusted price-to-earnings ratio, which Shiller popularized to smooth out the effect of earnings over the longer run, currently sits at 33 times earnings. It reached as high as 44 in 2000, just before the dot-com crash.

Trading in S&P 500 Index futures pointed to a higher open Friday.

Early last year, Shiller had said that he had refrained from adding to his own U.S. stock positions and was emphasizing overseas markets instead. He did, though, note the temptation to jump in based on Trump’s proposals -- or the expectation of other investors to believe in his program.

Read here what Shiller had to say last year.

©2018 Bloomberg L.P.