Article
The Shiller P/E and S&P 500 returns revisited
3 March 2025
Welcome to Applied Philosophy, a regular piece on global equity markets from András Vig and the Global Market Strategy Office. In the piece, they take an in-depth look at a topic of economic or market significance, before assessing how its evolution could inform or impact their model asset allocation.
US equities have ignored valuation signals in the last 12 months as a technology-led rally boosted returns. This trend has shown signs of running out of steam year-to-date as European and Chinese stocks have outperformed. At the same time, valuations have reached levels close to extremes based on cyclically-adjusted price/earnings ratios.
Paul Jackson uses the Shiller P/E as a case study to approximate expected returns on the S&P 500 for the next 10 years. Should he ignore his contrarian instincts?
FAQs
Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds and cash and so on. Bonds generally tend to be ‘safer’ investments than stocks and are, for example, seen as more defensive. Assets are allocated based on economic and monetary expectations.
Model portfolios are a diversified group of assets. They are designed to achieve an expected return with the corresponding risk. Model portfolios are usually extensively researched and, in most cases, have a combination of managed investments.
Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income, and commodities. The aim of diversification is to reduce the overall risk of the portfolio.
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