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Solid earnings season won’t be enough to avert another correction, economist Robert Shiller says

April 16
10:29 2018

Nobel Prize-winning economist Robert Shiller believes a strong earnings season may not be adequate to keep stocks out of the red.

Despite two corrections since February, the Yale University Professor — who predicted both the dotcom bubble of the late 1990s and the housing meltdown that triggered the 2008 financial crisis — contended market valuations are still overvalued.

“As of the fourth quarter, real S&P 500 earnings were still below their 2015, if you correct for inflation. So, it’s not like we are in this spectacular market,” Shiller said this week on CNBC’s “Trading Nation.”

However, he warned: “Obviously, a solid earnings season is good news for the market. But it’s not something that we should bank on.”

So far, first quarter earnings season is getting off to a solid start. On Friday, big banks JP Morgan ChaseCitigroup and Wells Fargo reported solid beats against the top and bottom lines.

Yet, the broader markets didn’t take it as signal to run higher. The Dowclosed lower by a half percentage point. The S&P 500 Index and Nasdaq also lost ground. But the three indexes still were up on the week.

Whether disappointing earnings enter the picture, or investors become nervous due to Mideast or trade war risks, Shiller contends it’s often unclear what sparks an extended stock market downturn.

“What will take us lower? That is always the question people have. What triggers corrections,” he asked. “Typically, there really isn’t any really big news except news of the correction.”

Continue Reading at CNBC

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