A classic sign of a bubble in US stocks

Bullish investors in American equities have called a key stock-market metric into question.

Robert Shiller's Cape ratio has "gained wide acceptance as an accurate gauge of the stock market", writes John Authers in the FT. But the Cape or cyclically adjusted price/earnings (p/e) multiple which compares share prices to average earnings over ten years is "under attack" from rival economist Jeremy Siegel.

The Cape currently signals that the American stock market is overvalued by 62% and "more expensive than any other big stock market". However, Siegel claims the ratio as it stands has an in-built bias that makes current equity prices look more expensive than they are, and many investors agree.

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