The US stock market has fared well over the past month, with the S&P 500 now not far below its record high. Admittedly, many observers continue to predict that the index will slump again at some point soon because its valuation is unsustainably high. This, they claim, is likely even if the US economy remains healthy. After all, four of the ten bear markets of the last fifty years occurred in the absence of a recession when, like now, Shiller’scyclically-adjusted price earnings ratio (CAPE) for the S&P was much higher than its long-run average. The CAPE is currently about 26, more than 80% above its average since 1881.
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