Cross-Asset Strategist & Quantitative Analyst, Pennock Idea Hub

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as a quantitative equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989.

Cross-Asset Strategist & Quantitative Analyst

Pennock Idea Hub

We are creators of independent equity research. The Pennock Idea Hub team are veterans of the investment industry. Much of our team has spent their careers at Merrill Lynch, Deutsche Bank, RBC Capital Markets and Wood Gundy. We have taken every aspect of research back to the studs and returned to first principles. The Pennock Idea Hub marries the interests of the sell and buy side. 

We offer the best research for institutional investors by:

-Only publishing research from veteran analysts
-Eliminate the inherent conflicts of the traditional sell and buy side relationship
-Ensure our team is always accessible; collaboration with clients nurtures our collective success

Cross-Asset & Quantitative Research

Thematic (Sector/Industry)

United states / Thematic (Sector/Industry)

<p>In our discussions with investors, the Cyclically Adjusted P/E (CAPE), or Shiller P/E, has come up numerous times as a risk for the U.S. stock market. The current reading of 32x is only exceeded by the peak during the NASDAQ Bubble, and it is higher than the levels seen before the Crash of 1929. Does this mean that the risk of a substantial stock market drawdown in the near future is rising?</p><p>We studied the question in the context of some of the criticisms of the Shiller P/E. We made a number of adjustments to the calculation, and we found that the answer is the same. The U.S. equity market is expensive, but Shiller P/E does not work well as a short-term market timing technique. However, we have found that the combination of valuation and price momentum can provide clear warning signs that the market is about to enter a bear market.</p>

In our discussions with investors, the Cyclically Adjusted P/E (CAPE), or Shiller P/E, has come up numerous times as a risk for the U.S. stock market. The current reading of 32x is only exceeded by the peak during the NASDAQ Bubble, and it is higher than the levels seen before the Crash of 1929. Does this mean that the risk of a substantial stock market drawdown in the near future is rising?We studied the question in the context of some of the criticisms of the Shiller P/E. We made a number of adjustments to the calculation, and we found that the answer is the same. The U.S. equity market is expensive, but Shiller P/E does not work well as a short-term market timing technique. However, we have found that the combination of valuation and price momentum can provide clear warning signs that the market is about to enter a bear market.

Should You Be Worried About an Elevated Shiller P/E?