Key Words: Stock markets don’t need a ‘trigger’ to correct, says Robert Shiller

A pullback for this Teflon stock market could come like a thief in the night.

That’s the view of Nobel Prize-winning Yale University economics professor, Robert Shiller, who was interviewed in snowy Davos, Switzerland, on Tuesday as the World Economic Forum got under way. He was asked by CNBC if he thought any specific trigger could finally break the winning run for stocks.

‘People ask ‘well what will trigger it (a market correction)?’ But it doesn’t need a trigger, it’s the dynamics of bubbles [that] inherently makes them come to an end eventually.’

Robert Shiller

In the wake of U.S. President Donald Trump’s election, Wall Street equities hit several records over 2017, and the S&P 500 SPX, +0.81% has now gone more than a year since a 5% drawdown.  

“Something will be invented to explain it once it happens. If you go back to the most famous correction in 1929 there was no [one event] people look back and try to find something, but it sounds contrived,” he said.

Read: Stock market headed for ‘nasty surprise’ if this signal proves correct

Shiller is behind a famous ratio to gauge whether stocks are expensive — the CAPE. That compares the S&P 500 to its average, annual-inflation-adjusted earnings over the previous 10 years. It currently stands at 34, which is well above the 15-year average of 25, and almost twice its long-term average of 16.8, which stretches back to 1881.

The CAPE ratio has topped 30 in 1929, before the Great Depression hit, and only once more, during the dot-com bubble.

Read: This 1 chart shows the U.S. stock market is the most expensive in the world

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