If a Stock Market Crash Is Coming, History Says This Is the Smartest Move to Make
Investors shouldn't try to predict a market crash.
Overview
A couple of well-known market metrics have been flashing warning signs that stocks may be very overvalued. Meanwhile, an ongoing conflict with Iran, an already pressured consumer, and the potential for higher interest rates all could add kindling to a potentially explosive situation.
One of the most alarming metrics that the market may be overvalued is that the S&P 500's (SNPINDEX: ^GSPC) cyclically adjusted price-to-earnings (CAPE) ratio has closed above 40 for three straight months. This metric was developed by economist Robert Shiller to smooth out earnings cyclicality and is based on a 10-year average of inflation-adjusted earnings. The last time the CAPE ratio sat above 40 for an extended period was right before the dot-com bubble crashed. A 40 reading is more than double the metric's historical average of roughly 17 and approximately 50% higher than 20-year historical average.
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Originally published at www.fool.com.