Robert J. Shiller: Nobel-Winning Economist Warns Of US Stock Market Bubble

New research by Yale University market scholar Robert Shiller shows that more investors are concerned about the prospect of a stock market bubble than at any other time since 2000, raising further questions about whether the current market is wildly overvalued.

Speaking with the Financial Times over the weekend, Shiller noted that his confidence surveys of investors (also known as valuation confidence indices), appear to show more fear among investment professionals than at any other time since the dotcom bubble, which reached its peak in 2000.

“It looks to me a bit like a bubble again with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market.”

Shiller was quick to note, however, that timing a market fall is highly improbable, if not impossible. He cast doubt upon a major drop in the stock market, should the Fed raise interest rates later in the week, asserting that a market downturn has been talked about for so long that most investors expect it to transpire. Shiller also called into question the prospect that interest rates and equity prices are linked, debating that historical evidence joining the two exists.

“You would think that when interest rates are higher people would sell stocks, but the financial world just isn’t that simple.”

Other investors were quick to debate Shiller’s stance, however, as CNBC points out. Michael Gurka, founder and president of BruinHill Partners, said that US stocks are “absolutely not” in a bubble. If a bubble in the stock market were to exist, he noted that “it’s so far down the road that we need to see much higher inflated prices to warrant that.”

While the Fed is widely expected to raise interest rates in the near future, Richard Kelly, head of global strategy at TD Securities, argued that US equities are in a very different space now than during previous rate hikes. Despite noting that the Fed had encourage investors into equities for the majority of the last decade, he still questioned whether the stock market is in a bubble.

“I think it’s reasonable to expect that as the Fed starts to hike we may not see the same support within the equity markets that we have in the past because we are going to try to rotate some of that back out of the market.”

Shiller, meanwhile, pointed to the recent bout of volatility as further evidence that investors are worried and “re-evaluating their exposure to the stock market.”

[Photo by Wendy Carlson / Getty Images]