Take this with a train of salt because I’m not an economist, but one of the most often touted general points of the need for a correction is the cyclically adjusted price to earnings ratio being elevated [1].
In other words, stocks are more “expensive” and thus ripe for a correction
Note that that's the Shiller P/E ratio, which (even after today) is still at 26, which is quite high. The regular P/E is still only around 20, which is at the upper limit of reasonable.
The whole point of the Shiller ratio is that it's supposed to do a better job predicting overheated markets, and it may well be doing that here. The regular ratio is based on recent earnings, which will be uncharacteristically high during a bull economy.
That's not to say it's incorrect. I was just noting that your link indicated a higher value than I was expecting, and that's why. (It implies that the market could easily fall another 25% before reaching reasonable territory.)
Correct. I deliberately chose the longer CAPE terminology because I thought it was more descriptive than the term Shiller PE. But thank you for adding a better explanation
Definitely, especially in light of a probable recession.
One possible enhancement to the PE ratio I've read about that seems really helpful is to make it after tax, since the tax rate on companies can vary depending on locality and time.
In other words, stocks are more “expensive” and thus ripe for a correction
https://www.multpl.com/shiller-pe