U.S. large-cap stock returns are expected to fall over 6% every year for the next seven years, according to leading investment firm GMO.
There’s no shortage of yardsticks to measure stock prices relative to fundamentals. And they pretty much all show the same thing … stocks are expensive! Which leaves many investors wondering, “Should I prepare my investment portfolio for a recession?”
One popular gauge to answer this question is the cyclically-adjusted price-to-earnings (CAPE) ratio. It compares the price of a stock or index to an average of earnings over time. This can show if an asset is overpriced.
Here’s the CAPE ratio for the U.S. over time:
Based on this measure, stocks have only been more expensive twice … in 1929 and again during the 1990s dot-com bubble.
But while the CAPE ratio for U.S. stocks is 32, the measure for emerging markets is less than half that figure at 15.
For investors, that means there are some great opportunities to be taken advantage of.
That’s why Ted Bauman started Bauman Daily. To increase access to wealth-gaining knowledge for Main Street investors and help them navigate investing during a recession.
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