Frothy, but not like 1999: This new valuation indicator has stocks beating inflation

Mark Hulbert reports that Research Affiliates’ “Current Constituents CAPE” (CC‑CAPE), which calculates 10‑year earnings using only firms currently in the S&P 500, shows U.S. stocks are less frothy than the traditional Shiller CAPE implies. The CC‑CAPE has stronger historical predictive power (r‑squared 36% vs 26% for Shiller) and currently sits higher than 87% of past monthly readings versus the Shiller CAPE’s 97th‑percentile reading. Econometric models calibrated to each measure imply diverging 10‑year real total‑return outlooks: CC‑CAPE implies about +1.0% annualized above inflation to 2036, while the Shiller CAPE implies roughly −0.3% annualized. The piece concludes stocks remain overvalued but that comparisons to the 1999 internet bubble may be overstated, implying a more moderate market risk/reward than the traditional CAPE suggests.