What does the CAPE ratio tell us about US markets?

Excess returns expected for US stocks

The stockmarket in the US is highly priced when viewed through CAPE, the real question is, is it justifiably so?

CAPE is well proven to characterise the relationship between a cyclically adjusted price-earnings ratio and subsequent long-term returns. Historically, on average when the CAPE ratio for the US market has been high, the subsequent ten-year returns have been low or negative, and vice-versa. As to the question of is CAPE the 'right' measure, in recently-conducted research we find CAPE is still statistically the best predictor of future returns over the long run versus a host of different predictors. AllianzGI's Riddell: The US dollar is now a 'risk-on' currency CAPE, however, is n...