![]() ![]() ![]() "If you go back in history, it was higher than that only around 2000 before the big crash of the Dotcom bubble, it wasn't even at that high a level in 2008 before the big financial crisis." In May 2008, before stocks started falling, the CAPE was 23.70. "You basically see that it's now still in historically high levels," Goldstein said of the CAPE Ratio. Others noted that the CAPE uses past earnings, but what investors are interested in is future earnings. Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School of Business, has argued in research that changes in accounting standards cause the earnings data to be biased downwards and thus the CAPE to be biased upwards. Itay Goldstein, a professor of finance and economics at the University of Pennsylvania's Wharton School of Business, told ABC News that the measure is essentially used as "an indication for whether the stock price is too high or not." The measure looks at firms' inflation-adjusted real earnings per share over a 10-year period to indicate possible over- or under-valuations. One measure often used by economists to predict a potential asset price bubble is the cyclically adjusted price-to-earnings (CAPE) ratio, developed by economist and Yale University professor Robert Shiller. ![]() Here's what we know and don't about the market landscape: Key overvaluation indicator at highest level since the Dotcom bubble While the pandemic's abrupt disruption to American life is another reminder that it's impossible to predict the future, historical patterns and the precariousness of present market conditions have some economists warning that current growth rates may be unsustainable, especially amid inflation worries and potential tightening by the Fed of monetary policy. MORE: What to know about 'stablecoins,' the 'bridge' between cryptocurrencies and traditional money ![]()
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