Nobel laureate economist Robert Shiller (Robert Shiller), a professor at Yale University, urged investors to be cautious when investing in the stock market.

Schiller said, “No one can predict the future, but given the general lack of investor confidence amid the COVID-19 pandemic and political polarization, a negative, self-fulfilling prediction is likely to prevail. This highlights the importance of diversifying investments in asset classes, including safe US Treasury bonds, and reducing risk exposure in US stocks.”

Schiller said, “The COVID-19 crisis and the US election in November have brought investors' concerns about a major market collapse to the highest level in many years. Meanwhile, stock trading is at a very high level. This unstable combination does not mean that a collapse will occur, but it does indicate that the risk of an accident is relatively high. This is a time to be careful.”

Specifically, Schiller's “Crash Confidence Index (Crash Confidence Index)” is sounding a wake-up call. According to Schiller, investors are responding, “How likely do you think it is that in the next six months, a catastrophic collapse of US stocks (similar to October 28, 1929 or October 19, 1987, including the collapse in other countries and spread to the US) is likely?” At the time of the question, the bearish answer showed that the index had reached one of the lowest readings in history.

Schiller also pointed out that apart from the Great Depression of the 1920s and the bursting of the Internet bubble, the Cyclically Adjusted Price-Earnings Ratio (CAPE) is currently at an all-time high. The cyclically adjusted price-earnings ratio, also known as the Schiller price-earnings ratio, compares stock market valuations in different eras by averaging 10-year returns, thereby reducing short-term fluctuations in each market cycle.

“Despite these worrying signs, the market has been approaching record highs, pushing stock valuations to quite high levels,” Schiller said. He added that investors could be at a “crossroads” in this case.

He said, “The question now is whether it is possible to once again remind people of the market collapse that occurred in the past, thus creating a psychological sense of risk. A resurgence of COVID-19, chaotic or violent elections, or many other events could disrupt investors.”