Robert Shiller: Stock Market Confidence Can Turn Around in a Hurry

Monday, 11 Mar 2013 08:30 AM

By Dan Weil

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Many commentators cite Americans’ renewed confidence as a major reason behind the Dow Jones Industrial Average’s surge to new record highs, says Yale economist Robert Shiller.

But that positive sentiment can prove to be fleeting, he notes. “Clearly, confidence can change awfully fast, and people can suddenly start worrying about a stock market crash, just as they did after 2007,” he writes in an article for The New York Times.

The Dow’s ascension to all-time peaks isn’t a reason for optimism by itself, Shiller says. After all, that occurrence is nothing very new.

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

The Standard & Poor’s 500 Index has done it 1,007 days since 1928. That’s about once every 23 trading days, Shiller notes. “Nothing is remarkable about reaching a market record.”

The stock market hadn’t hit a nominal record for six years or an inflation-adjusted record for 13 years before last week. But this “means only that we haven’t made any real money in the stock market in 13 years, which hardly seems a reason for confidence.”

“[T]he market is somewhat overpriced and might show below-average returns in the future.”

In the end, “public thinking is inscrutable,” he concludes. “We can keep trying to understand it, but we’ll be puzzled again the next time the markets or the economy make major moves.”

Meanwhile, the S&P 500 may break a record of its own, reaching 1,600 this year, Bank of America technical analyst Mary Ann Bartels tells Bloomberg.

“There are so many sectors and stocks breaking out of the 10-year trading range that I’ve never seen in my career. This is a strong market.”

The S&P 500 closed at 1,551 Friday and touched an all-time zenith of 1,576 Oct. 11, 2007.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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