Individual-security CAPE reveals deeper market overvaluation
A bottom-up, security-level application of the CAPE ratio suggests the US stock market is even more overvalued than traditional aggregate CAPE metrics indicate.
The argument
The guest highlighted a new academic paper showing that analyzing each stock's CAPE against its own history improves return forecasting, but currently signals extreme overvaluation across the market.
The thesis, stress-tested
✓ What validates it
- ✓A contraction in forward equity returns over the medium term
- ✓Widespread multiple contraction across individual S&P 500 components
▸ Risks discussed
- ▸CAPE is a long-term forecasting tool and does not predict short-term timing of market corrections
Hear it yourself
"Why? I I think, honestly, every professional investor I know is suffering through a period of deep depression because it like, there is just nothing you can actually say about what is happening other than here we go again. And, you know, you think you learn. My work obviously suggests there's a mechanical component to much of this. The behavior of the indices actually would seem to validate that at this point. And so, you know, we're just kind of all waiting for what happens next because this this has not happened before. We actually don't know how this will play out. We can build"
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE