Are The CAPE Ratio And The Inverted Yield Curve Sending Us Sell Signals?

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About: SPDR S&P 500 Trust ETF (SPY)
by: Louis Kokernak, CFA
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Louis Kokernak, CFA
Long only, investment advisor, long-term horizon, ETF investing
Summary

The CAPE model indicates that the US stock market is overvalued . and has for nearly 31 years.

The dynamics affecting American stock market returns have changed dramatically over the sampling period of the CAPE model. It may no longer hold.

The signals sent by the CAPE model are not strong enough to cause investors to stray from their long run investment policy.

The inverted yield curve may forecast recession but says nothing about future stock returns.

in early 2017, I examined the forecast value of the Cyclically Adjusted Price/Earnings (NYSEARCA:CAPE) model. The CAPE model indicated then, as now, that the US stock market was substantially overvalued. Many in the